Advice, file-notes and adverse inferences
It’s tempting for advisers to celebrate Griffiths v Evans as karma. It’s hard not to celebrate lawyers being criticised for poor practice and poorer processes, but it’s important to appreciate that the same expectations apply to financial advisers.
Despite the emphasis on regulated documents, and the increasing use of technology, advice – and particularly the discovery process – has an oral foundation. Unfortunately, memory is imperfect.
If it’s not written down, it didn’t happen
In practice, a failure to appropriately document client conversations, answers or agreements is not simply inconvenient, it’s potentially problematic for you and your business. In the event of any claim, investigation or review, poor file-noting undermines your credibility and exposes you to additional risk.
In most cases, poor file-noting won’t be a critical failure, but you should understand that Regulators and Courts will often draw adverse inferences from the absence of contemporaneous notes.
In the event of a claim or dispute, scant, incomprehensible or non-existent file-notes may prejudice your defence and “induce doubt whether the advice was given at all”
Good, better, best.
We’re often asked what makes “a good file-note” and we’re often asked to provide templates that meet, or exceed, our expectations. The reality is that, apart from some basic administrative issues, the ‘best’ file notes are simply clear, contextualised, proximate and detailed.
Clear - Whether you prefer key words to short sentences or diagrams to paragraphs, the best file-notes present relevant information is a consistent and considered manner. There are a variety of ways to approach note-taking but the best strategy is to presume that the notes are for a third party trying to understand what you were thinking. Make their job easier by being clear, concise and conclusive.
Contextualised - Written records often poorly capture tone. The better file-notes manage this limitation by doubling down on context; they explain what was meant, why things were said and the emotion behind those conversations. Good advisers are naturally attuned to the rhythm and sub-text of their client’s conversations, the better advisers record it to better explain what occurred and why.
Proximate - Ideally, file-notes of conversations and events will be written at the time they occur (contemporaneous) but, it’s enough that the record is created near the time of the conversation or event (proximate). Human memory is imperfect and the more time that elapses between the conversation or event and the preparation of the record, the less accurate and reliable the record will be. Further, Courts tend to dismiss records that are prepared some time after the event because they’re often biased, self-serving and unreliable.
Detailed - Good records provide content, context and meaning. Great file-notes provide a reliable, accurate and (relatively) complete representation of your interaction or inquiries. The level of detail depends on your assessment of what is important, so it’s scalable, but remember that large consequences can rest on small details.
Notes, quality and reviews.
Our review methodology explicitly considers the ‘quality’ of documents (including file-notes) so we’ve got firm views on what makes a “good file-note”. In my experience, an adviser’s file-noting approach provides a remarkably accurate yardstick for their advice quality. File-notes consisting of chicken-scrawls and vast acres of white space often produce disjointed and unclear recommendations. Advisers that take the time to properly record their conversations and insights tend to produce advice that is well-considered, more comprehensible and better grounded.
As much as people may assert that good file-noting is just common sense, it’s a skill that can be developed and a knack that can be refined through practice and experience. It’s no accident that the advisers I think keep the best notes are either ex-lawyers or former respondents. Litigation experience, or real fear of litigation, raises awareness and skill levels far more effectively than any number of practice management workshops.
Two advisers we recently reviewed (SC and KL) tendered file-notes of such high quality that they seemed inconsistent with their prodigious workload. Their approach appeared to me to be less driven by risk-management concerns than from commercial considerations; properly documenting conversations and inquiries saved them time, eliminated re-working and streamlined the para-planning process. It also helped to transform their Statements of Advice from disclosure documents to compelling recommendations with a rich narrative spine.
Rome wasn’t burnt in a day. You can make significant process improvements in remarkably little time.
Start by reviewing a selection of your file-notes and ask yourself questions like:
Is your language objective, neutral non-judgmental?
Have you made assumptions or departed from known or established facts?
Do your notes properly attribute comments and statements?
Do you record the context and circumstances around your comments and observations?
Are your comments and observations adequately contextualised?
Are your notes ambiguous?
Has your client signed your file-note?
Are your notes contemporaneous or reasonably proximate?
Are your file-notes dated, clear and accurate?
The pay off
With deliberation, both your processes and your risk profile can significantly improve.
In fact, the benefits you’ll secure significantly outweigh the cost of making these relatively minor process improvements.
Make some changes to your approach. Perhaps if you do, your next audit report may observe that:
Your notes, in contrast to common industry practice, are clear, contemporaneous, detailed and appropriately contextualised. Although we consider that your notes are examples of ‘best practice’, we’d still emphasise the importance of properly attributing comments and statements and recording the context and circumstances around your comments and observations. File-notes are discoverable, so it’s also important that they are objective, neutral and precise.
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