Advocis Conference Update: Get organized to avoid legal claims

(May 13, 2005) The vast majority of legal claims against advisors end up going nowhere. But in the less than one-third of claims where the client is awarded payment, it’s usually the result of poor documentation, not because the advisor did something wrong, insurance and legal experts say.

“You don’t have to be guilty of anything to be sued,” said Paul MacDonald of insurance broker AON Reed Stenhouse during a panel discussion on Thursday at the Advocis conference in Halifax. “There are far more claims alleging you did something wrong when you didn’t, than there are when you are found guilty.”

But being sued is part of the territory for professionals in today’s society, added lawyer Mark Frederick of Miller Thompson, and it’s important that advisors are fully prepared and equipped to deal with any potential lawsuit.

“You want to be organized and efficient,” Frederick suggested. “Organized people are not sued as often.” Disorganized advisors do not look presentable to judges, Frederick said, nor do careless-looking practices.

“Someone who’s disorganized may make a note, but I guarantee you, they’ll never find it. Someone’s who’s disorganized may get a new sales order, but may forget to fill it. No one wants to hire someone who doesn’t appear and carry on in an organized fashion.”

Frederick’s suggestions include setting up a well-organized file system, either paper-or computer-based, storing all files in a safe place and keeping copies of draft documents.

“It’s important to keep drafts around. It’s evidence that you sat down and got real answers from you clients. Judges like to see stuff that was made at the time. And they like paper. Human memory has frailty.”

Take detailed notes during client phone calls, he advised. “When you take 100 calls a day, you can’t remember what you had for lunch yesterday, much less a phone call from three or four years ago.”

Back up computer records, Frederick also advised, and be careful when using e-mail, which he referred to as a wonderful device for communication, but also a tool for sloppiness. “Keep a record of important e-mails and make sure you don’t use e-mail for communication that can come back and hurt you — they can come out in a court case.”

All pretty basic stuff, you would think, but as fellow lawyer Ellen Bessner of Gowling Lafleur Henderson noted in her plenary speech on Friday morning at the Advocis conference, many advisors aren’t properly prepared for lawsuits, because they don’t believe they will ever get a complaint.

Not true, she insisted. “It’s not a matter of whether, but when. These days, clients are educated on how to sue advisors through glossy brochures and sophisticated websites.”

And even a single complaint can have a devastating impact, she said, affecting an advisor’s reputation, licence and income. “Complaints create a domino effect because advisors get clients through referrals.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com