Advisors easy targets for legal action, lawyer says

Know your client. “That’s not just completing know-your-client forms. That’s a bare minimum and most of those forms are below the acceptable standard, in my opinion.” Know your client. “That’s not just completing know-your-client forms. That’s a bare minimum and most of those forms are below the acceptable standard, in my opinion.” Create and maintain […]

By Doug Watt | November 11, 2003 | Last updated on November 11, 2003
3 min read
  • Know your client. “That’s not just completing know-your-client forms. That’s a bare minimum and most of those forms are below the acceptable standard, in my opinion.”
  • Create and maintain detailed records. “Written records are inherently more reliable than memory. You need to be able to say what you did, often many years later. Without written records, how are you going to be able to testify with great certainty before the courts? If I find your files are a mess and that you have not communicated clearly, then the chances of me being able to trip you up on credibility are relatively high.”
  • Confirm facts, opinions, assumptions and recommendations. “What did the client tell you? What assumptions did you make? Give them a series of recommendations so they can make the decision, not you. If your client wants to gamble, confirm it in writing, don’t take the risk yourself.”
  • Update your records regularly. “You need to know your clients’ status to service their needs.”

    Related News Stories
  • The write stuff: How to protect yourself with a proper paper trail
  • Making it clear: An advisor’s guide to written engagement & disclosure
  • Limit the scope of your retainer in writing. “Don’t become the financial advisor on all issues under the sun unless that’s what you intend to do.”

    In situations where an advisor disagrees with a client’s decisions, the process must be fully documented, Geller added. “You’ve got a duty not only to advise your clients as to the full range of options, but you have the duty to dissuade them from inappropriate investments,” he said. “You don’t have to refuse to do the deal, but you have to get them to sign off in writing that you have recommended not to take that step.”

    Geller also believes that clients should know exactly how their advisor gets paid. “What’s there to hide?” he asked. “It frustrates me as a consumer when I don’t know how I’m paying somebody. It doesn’t frustrate me that I’m paying my financial advisor to advise me. It’s not good business not to communicate this and it’s a liability risk.”

    Ultimately, those who keep detailed records and communicate in plain English will look good in the eyes of the law, Geller said. “A judge is going to want to help you because now you’re the reasonable person. And if your client says she didn’t understand the risk, you’ve got something that shows how you communicated. Your credibility is enhanced and theirs is diminished.”

    How have you protected your practice from lawsuits? Or do you have any questions for your peers about how to do so? Share your ideas and question about how to bulletproof your business against lawsuits in the Talvest Town Hall on Advisor.ca.

    Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

    (11/11/03)

    Doug Watt

    • Know your client. “That’s not just completing know-your-client forms. That’s a bare minimum and most of those forms are below the acceptable standard, in my opinion.”
    • Create and maintain detailed records. “Written records are inherently more reliable than memory. You need to be able to say what you did, often many years later. Without written records, how are you going to be able to testify with great certainty before the courts? If I find your files are a mess and that you have not communicated clearly, then the chances of me being able to trip you up on credibility are relatively high.”
    • Confirm facts, opinions, assumptions and recommendations. “What did the client tell you? What assumptions did you make? Give them a series of recommendations so they can make the decision, not you. If your client wants to gamble, confirm it in writing, don’t take the risk yourself.”
    • Update your records regularly. “You need to know your clients’ status to service their needs.”

      Related News Stories
    • The write stuff: How to protect yourself with a proper paper trail
    • Making it clear: An advisor’s guide to written engagement & disclosure
    • Limit the scope of your retainer in writing. “Don’t become the financial advisor on all issues under the sun unless that’s what you intend to do.”

    In situations where an advisor disagrees with a client’s decisions, the process must be fully documented, Geller added. “You’ve got a duty not only to advise your clients as to the full range of options, but you have the duty to dissuade them from inappropriate investments,” he said. “You don’t have to refuse to do the deal, but you have to get them to sign off in writing that you have recommended not to take that step.”

    Geller also believes that clients should know exactly how their advisor gets paid. “What’s there to hide?” he asked. “It frustrates me as a consumer when I don’t know how I’m paying somebody. It doesn’t frustrate me that I’m paying my financial advisor to advise me. It’s not good business not to communicate this and it’s a liability risk.”

    Ultimately, those who keep detailed records and communicate in plain English will look good in the eyes of the law, Geller said. “A judge is going to want to help you because now you’re the reasonable person. And if your client says she didn’t understand the risk, you’ve got something that shows how you communicated. Your credibility is enhanced and theirs is diminished.”

    How have you protected your practice from lawsuits? Or do you have any questions for your peers about how to do so? Share your ideas and question about how to bulletproof your business against lawsuits in the Talvest Town Hall on Advisor.ca.

    Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

    (11/11/03)