Would you bet your career on Paper, Scissors or Rock?
Best Practice Advice & Compliance & Sales & Marketing for Professional Services & Sales Tips

Would you bet your career on Paper, Scissors or Rock?

September 11, 2015

by Tony Vidler

I still vividly recall getting that phone call from the complaints authority because a client alleged that I had misled them.  Unless you’ve experienced one of those calls it is virtually impossible to describe the sinking feeling and immediate sense of paranoia…

…and so begins the game of Rock, Paper, Scissors.

Client throws Rock.

I try to beat it with Paper.

Complaints authority takes to it with the Scissors.

That’s the way the game plays out.  EXCEPT…the right Paper beats everything.  Paper wins every time in our game.

In my case I received a call from the Ombudsman’s office which began with “do you represent client X?”  Once we’d confirmed who I was and who they were and that the professional relationship did exist, they advised me verbally of the substance of the allegations.  This first preliminary step was to ascertain whether there was a case to be heard at all, so I was given the opportunity to submit my “version” before a decision was to be made on whether to hear the complaint.

The client alleged that I had sold them (a couple) a locked in retirement savings plan, which was heavily front-end loaded with fees and commissions (so much so that it took some 8 years to break even for the client), and that I had not disclosed these charges, nor advised them it was untouchable (locked in) until age 65 – and of course they had wanted to set up a savings plan which was flexible and could possible contribute towards a house deposit.  Their statement of claim (the allegation) was detailed and convincing – right down to quoting parts of the conversation which had apparently been had some 8 years prior, describing my pin-striped navy blue suit and red tie, and remembering what time the meeting had been.

From the Ombudsman’s perspective this seemed at fist glance to be a pretty open-and-shut case. I WAS their adviser. They DID have a retirement plan as they had described – complete with all the limitations they described.  It was even true that I used to get about in a pin-striped navy blue suit and had a leaning towards red ties for a while.  But there was one critical flaw in the complaint.

The clients had bought the retirement savings plan about 3 years before I met them.

I had actually met the clients as a referred lead initially, and essentially engaged in a comprehensive risk planning exercise.  While doing so and determining what cover they had we found that there was this retirement plan that had been put in place by an adviser who had since left the industry.  As a professional I obtained their written authority to obtain information on it directly from the product provider, and was subsequently appointed as the “servicing adviser” by that supplier. There was no commission or income payable to me on it, but that was of no consequence to me.  It was all part of the service, right?

Anyway, after the initial conversation with the Ombudsman I went to the client file (yes, it was a bulky paper file!) and within about 20 minutes had sent a copy of all of the contact notes, the initial engagement letter and meeting notes, and a couple of statements and pieces of correspondence showing that I had been appointed to service an existing contract put in place by someone else.

No case to answer.  The Ombudsman thanked me for my time and the entire affair was done from start to finish in about an hour.

Paper won that game.

As it turns out, over the course of quite a few years of practice I had a couple of complaints – and paper won the game every time.  Rocks were thrown,and people took to the records with scissors to try and cut out just the bits they thought might be useful ton their own arguments….but it is the entirety of the paper trail which provides defence.

I was reminded of this when reading a recent case summary from the Financial Services Complaints scheme (reprinted below).  To be fair I have seen and heard similar stories fairly regularly as one of the things I do is provide expert witness services around financial advice processes and liability or negligence issues.  Invariably when reviewing these situations there is 3 versions of the truth; the clients’, the adviser’, and the real one somewhere in between the other two.

What tips the balance of probability as to which version of the truth is most likely to be correct is the paper trail.  The paper trail is the evidence of what transpired as recorded at the time of the event, or advice.  The case below from FSCL appears to fit the classic mould of “he said…she said”…and appears to be an excellent example of a complaint that never needed to occur if there had been a robust paper trail at the outset.

Of course when I refer to a “paper trail” I am really referring to a robust audit trail. In reality it doesn’t matter what methodology or systems you use to keep client files, as long as you keep very very accurate ones – including contact notes.  From as defensibility perspective electronic recording with automatic date and time-stamping in file formats which cannot be altered or amended later without also leaving a further electronic footprint is more solid evidence than a hand-scribbled post-it note placed loosely in a cardboard file.  However, those post-it notes are better than nothing at all, especially if there is a continual stream of them in the client file and it is clearly a system (albeit primitive) of maintaining records.

The key point is that the processes and requirements of best practice advice, especially as dictated by regulators and professional standards boards, are onerous – but they are helpful.  They are career savers.

At a conference a couple of years ago I was presenting a session along these lines, and it was opened for Q&A from the audience.  An adviser in the room who I knew very well asked the loaded question:

I’ve been doing this for over 20 years and only work with existing clients now. They all know me, trust me, and they hate all the paperwork. They are happy with how it works now, so why bother with all this #%8@! stuff?

My answer:

“because you cannot guarantee they will all remain happy with you forever”

He was willing to bet his career and business on clients not throwing rocks, or outside parties not wanting to take the scissors to him.

I’d rather bet on Paper.

Case study – Miscommunication leads to misunderstanding of insurance policy benefits

 

In December 2012, Hank and Hannah called their insurance adviser to review their life and income insurance policies. Their adviser proposed a change of insurer and recommended life, mortgage repayment cover and trauma policies to replace their existing cover.

Hank and Hannah considered the advice and decided to proceed with life and mortgage repayment cover through their adviser.

Sadly, in August 2014 Hank was diagnosed with leukaemia. Hannah contacted their insurance adviser to clarify how their policies would apply, so she could organise a budget while Hank was off work. Their adviser replied that the mortgage repayment cover policy would pay both a standard mortgage repayment benefit plus a critical illness benefit of $15,240 (the equivalent of six months’ mortgage payments).

Hank and Hannah made a claim to their insurer for the standard benefit and critical illness benefit. The insurer paid the critical illness benefit but not the standard benefit. The insurer informed them that mortgage repayment cover is not paid for the first six months where a critical illness benefit is paid out.

Hank and Hannah were upset that their insurance adviser had given them incorrect advice. Hank and Hannah were certain that he had told them when they took out the insurance that the critical illness benefit was payable in addition to the mortgage repayment standard benefit, if either of them were to suffer a critical illness.

Hank and Hannah wanted their insurance adviser to pay them the six months’ mortgage repayment cover ($15,240) they thought they were entitled to. The insurance adviser refused, saying he never said the critical illness benefit would be paid in addition to the mortgage repayment benefit.

Dispute
Hank and Hannah complained to FSCL that their insurance adviser had misled them and had cost them $15,240.

Review
We investigated the complaint and found the insurance adviser:

  • was not acting as the insurer’s agent when discussing and implementing the insurance policies and could not make representations on behalf of the insurer
  • owed a duty of care to Hank and Hannah to exercise care, diligence and skill in negotiating and implementing the mortgage repayment cover policy
  • may have misled Hank and Hannah but there was insufficient evidence to find he had made a negligent misstatement
  • should have explained the critical illness benefit’s effects to Hank and Hannah.
  • inconvenienced Hank and Hannah in failing to explain the effects of the critical illness benefit at the point of sale of the policy and in giving them incorrect advice in August 2014 which had caused Hank and Hannah stress and disappointment.

Resolution
We found there was insufficient evidence to conclude that the insurance adviser had misadvised Hank and Hannah about the critical illness benefit when the policy was sold. We considered that the adviser should have better explained how the policy worked and if he had done so correctly, Hank and Hannah would have better understood the policy and the different policy benefits that applied .

We did not consider that the insurance adviser’s failure to discuss the benefit had caused any direct financial loss, but we felt that Hank and Hannah had been inconvenienced. We recommended that the adviser pay Hank and Hannah $2,000 in compensation for the inconvenience caused.

Unfortunately Hank and Hannah did not accept our recommendation, indicating that they would take the matter to court, and we closed our file.

Lesson
This complaint arose because of poor communication between the adviser and Hank and Hannah. We thought if the adviser had taken more time at the point of sale of the policy to clearly explain the different benefits payable under the policy and when the benefits would be paid, there would not have been any misunderstanding and later disappointment for Hank and Hannah at a difficult time in their lives.The miscommunication was mad worse at claim time when the adviser failed to properly check the policy and led Hank and Hannah to believe they would receive both the mortgage repayment cover and the critical illness benefit at the same time. This advice was mistaken and again led to Hank and Hannah’s extreme disappointment when the insurer said only the critical illness benefit was payable.

One thing is worth betting on when it comes to providing defensible advice:

You may also find this post useful: How to explain your process and fee’s to clients

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Comments (3)

  • Great article Tony and very relevant to whats happening in South Africa today.
    I have a system where when I am finished doing the presentation and when the client has agreed to proceed with the plan, I ask them to answer a short exam questionnaire.
    The questions and answers are in multiple choice format and deal with things like critical points or benefits and of course commission and fees. Example:
    You have agreed to a fee /commission with the adviser yes /NO
    The % fee is equal to: 6% 5% 4% 3% 2% circle the correct one
    at the end of the test they sign it. If any questions are are answered incorrectly you know then and there that you have to revisit that part of your presentation.so that the misunderstanding can be cleared up. The form also forms part of the paper evidence.

    Thanks for the great work…
    Regards

    Neill

    Neill Roynon
    • Thanks Neill – I appreciate the great feedback. Your process sounds good – an audit trail which “tests” the client for comprehension is a step beyond merely disclosing information and hoping they digested it.

      tonyvidler
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