Why Advisers should be more like Captain Kirk
Tertiary education and mentoring have their place but no reasonable person would suggest that these can come close to the practical and moral education benignly and patiently delivered by free to air television.
Even in an age of Kardashians and adulterated celebrity, no reasonable person could deny the munificence of television. The ignorant might try but the Twitterati will, in the fair and reasonable manner that characterises the internet, rise up to condemn them as “elitist” and “worse than Hitler”.
Television is more than a babysitter, friend, parent and spouse. It teaches and equips us with all the information, moral guidance and templates we need to navigate our world.
A thoroughly modern mentor
This truth is self-evident and it leads us, inexorably and inevitably, to another epiphany – financial planners should try harder to be more like James T Kirk, Captain of the USS Enterprise (NCC-1701).
Captain Kirk is worthy of emulation for a number of reasons. He showed us how to build and lead high performance teams, he routinely found innovative solutions to insoluble problems and he eagerly embraced different races and cultures.
All these are noteworthy, sure, but what makes Captain Kirk a role model for financial planners is that he really ‘got’ compliance.
Despite his tendency to ignore inconvenient regulations, Captain Kirk really understood the value of good file notes.
Think about it.
Every episode of the Original Series began with “Captain’s Log. Stardate …………….”.
It’s tempting to dismiss this as an expositional tool developed to cope with a limited budget, but it’s pure risk management.
The “Captain’s Log” was a contemporaneous file-note that documented critical information – Who, What, When, Where, Why - and provided the parameters and detailed context to explain the subsequent actions and interactions.
His file-notes were spectacularly successful. Kirk’s career prospered despite his destruction of starships, the loss of innumerable Red Shirts and his questionable workplace relationships. Despite insubordination, frequent conflict and his non-compliance with the laws of physics, Captain Kirk
Never had to claim against his PI Insurance;
Was never overwhelmed by the implacable Vulcan logic of the space Regulators; and
Was never banned or disqualified from Starfleet.
You don't have to be a rocket surgeon to realise that the reason for his success was neither his integrity nor courage, but his detailed and effective file-notes.
Planning and practice
Unfortunately, many financial planners fail to follow Kirk’s example.
On a regular basis, we encounter advisers whose regulatory, compliance or advice issues are caused, or exacerbated, by their failure to maintain adequate file notes.
In many cases, they’ve failed to keep any file notes at all.
It’s difficult to prove the reasonableness of your advice, or that you’ve acted in your clients’ best interests, without the documentation needed to prove key elements of your advice.
As an adviser, you are required to demonstrate that you have acted in your client’s best interest, and you have prioritised your client’s needs above your own. Some guidance has been provided in the Corporations Act, particularly s961B which outlines ‘Safe Harbour Steps’, but this on its own is not enough to prove that you have prioritised your client’s needs and acted in their best interest.
Simply following these steps does not guarantee you have met this duty. There is still a very large grey area at play here, but if we take a moment and examine each one of these steps in s961B(2) as an exercise and apply it to everyday processes, we can see that a large portion of what is being done to adhere to these guidelines is mostly through verbal interaction with your client, deliberation when conducting your research and providing written confirmation.
Content and Context
The Financial Ombudsman Service (FOS) have provided some guidance on what they think are the top 10 tips for advisers, and the Trekkies at FOS have placed “take detailed file notes” at the top of their list”. The Credit and Investments Ombudsman (CIO) haven’t named file-notes as their prime directive, but their top 5 tips for financial planners, certainly emphasise their importance.
We wish more advisers would emulate Kirk’s approach to file-notes and routinely record date, time, place, context (what, where, why and how).
On too many occasions we see file-notes that are truncated lists of things that were done and what paperwork was completed.
They’ll often briefly confirm a meeting, impute that goals and objectives were discussed but they seldom offer any additional insight into the clients’ needs, circumstances or concerns. They seldom provide sufficient context to explain why particular recommendations were made, how (and why) these recommendations are ‘fit for purpose’ or why the advice is likely to put the client in a better position.
Captain Kirk would not make these rookie errors.
He understood that the humble file note is one of the best risk-management devices available.
Memory is imperfekt
For most planners, the file-note is also one of the best ways to provide any general advice and information you have discussed, and to provide a general advice warning if needed.
It is certainly the easiest way to ensure that your recommendations reflect, and confirm, the essential elements of your engagement with you client.
The file-note is even more important where you are relying on a Paraplanner, or another external party, to document, and demonstrate the reasonableness of, your recommendations.
A file note should be contemporaneous or written as soon as practicable. I don’t think we need to labour the importance of this. As the New Yorker article demonstrates, human memory is imperfect and recollections decline in accuracy over time. Creating accurate records after the event is difficult; they are often incomplete, inaccurate and inauthentic.
More importantly, they have, in practice, less evidentiary value than you would expect.
In the event of a claim or complaint, an undated file-note, or one prepared after the event or not signed by the client, is regarded with some suspicion if not dismissed entirely as manufactured and convenient.
Often, claims and actions hinge on appropriateness. In this event, context and perspective are critical. In the absence of detailed file-notes (or any file-notes) advisers reduce the debate to an issue of credibility. Unfortunately for most advisers, the recollections of “widows and orphans” and those relying on the adviser’s professional skills are often judged “more credible” than those of the conflicted and ‘self-interested’ adviser.
Kirk kept meticulous file-notes because he understood their importance. Irrespective of whether you’re dealing with non-standard requests, confused clients or “life, Jim, but not as we know it”, your file-notes are critical.
You have heard it before, and it's true; your files are your best defence.
How to make better notes
We believe that your files should contain a complete record of your client’s situation, your interactions with them, your research and deliberation and the reasons for your recommendations (including confirmation of their consent).
When to write a file note:
After all client interactions;
During your research;
After any interactions with product providers;
After you make any decision regarding the advice you are going to give;
Advice presentation; and
What to include:
Date and time;
Who was present;
Type of meeting – face to face / telephone / Skype;
Subject and outline of the conversation;
Any warnings you may have given;
Anything that is not covered in your fact-finding documents;
Formal acknowledgment. Ideally, your client’s signature. This may be more difficult when the file itself is not hand-written, but you can also confirm your discussion by sending an email.
What to focus on:
Your Client’s perspective and assumptions;
The clarity and legibility of your note (where hand written);
The reasons for specific views and catalysts for the client decisions;
Client concerns or questions;
Explanations (or educative material) that you provided;
Your client’s acknowledgement and understanding of your reasons, your advice and the risks and implications.
Building better advice
Bad advice is bad advice, and it’s as simple as that.
But advice that seems reasonable can often be undermined or discredited by a lack of foundation. File-notes are critical.
Detailed, contemporaneous and authentic file-notes are the cheapest and most effective risk management device available to you. More importantly, they are entirely within your control.
File-notes can prevent everything from minor disasters to major catastrophes so they should command more of your attention than they may presently.
Rethink your priorities.