“Our ability to manufacture fraud now exceeds our ability to detect it.”
— Al Pacino, Government Contractor
The two-edged sword
Discussing the importance of file noting is generally considered one of the most uninviting topics for any advice practitioner.
Who would have thought then, that the current Public Board of Inquiry into how The Australian Federal Police and the ACT Director of Public Prosecutions behaved during a high profile court case would highlight the serious consequences of claiming a relevant file of a meeting as being contemporaneous when it wasn’t. This particular file note had been scribed by a junior solicitor during a meeting on, let’s say, a Thursday, however had actually been amended at the direction of the DPP on the following Monday to include additional information. The date of the initial file note did not change. The DPP admitted to misleading the court when he told the Chief Justice that his proofing note was contemporaneous when it wasn’t.
Advisers are often surprised to learn that file notes are not a legal requirement. They do however serve a vital purpose to ensure that what is known about a client, details of conversations, communications, requests and actions are preserved and not left to an imperfect memory, a previous staff member or a previous business. They can make the difference in the event of a complaint and create a means for efficient and effective transfer of client knowledge between multidisciplinary staff.
The reason why file notes are requested for file reviews (file notes of face to face meetings/video meetings, telephone calls, texts and any relevant client contact via email) is that they form part of a file, they help to contextualise the file as a whole. They assist the Licensee, regulator, complaints body or any other reasonable third party to illustrate how provisions within the Best Interest Duty (Corporations Act s961B(2) (g)) have been met by the adviser.
- they may include information which adds or subtracts from the data gathering/discovery/fact finding process
- they help to evidence how the adviser has identified and considered the clients relevant circumstances
- they help to validate and communicate what has been done. The absence of a contemporaneous file note can make it difficult to evidence certain actions were taken or certain conversations were had or concepts explained.
- File notes/Emails etc help to evidence how Code Standards are met. The standards are a legislative instrument which acts as a best practice guide to meeting best interest duty.
- Standard 4 requires a file to evidence how a client’s free, prior and informed consent has been achieved prior to acting on behalf of a client.
- Standard 5 requires a file to evidence how a client understands the benefits, risks, consequences and cost of advice prior to its implementation.
- Standard 6 requires a file to evidence how the adviser conveyed and the client understood the broader implications of advice.
- Standard 8 obligates an adviser to ensure records of clients and past clients are kept in a form which is complete and accurate.
Points to remember
File notes need to be accessible to the Licensee to assist the Licensee with their monitoring and supervision obligations. Advisers who house client correspondence in multiple systems can create a risk for themselves and their Licensee, particularly in the event of a time critical file/s request from a regulator.
The premise that providing a client with a wad of information to sign does not necessarily equate to informed consent. Therefore file notes/Emails illustrate how an adviser has validated and communicated their professional expectations and that appropriate advice was given. The overarching question is whether your file notes would stand up in a court of law as being contemporaneous and accurate.
Examples of emails and file notes to be retained on file are noted below, but not limited to:
- initial meetings, plan presentations meetings, data gathering and client clarifying questions;
- conversations which are strategic in nature or specific issues which may not constitute recommendations;
- recording of warnings provided;
- follow up actions by the adviser;
- requests by clients;
- contact with third party providers;
- contact with other specialist advisers or recommendations to seek advice from other professional advisers;
- evidence of implementation in a timely manner;
- the context and demeanor of the client and any responses to adviser education, risk profiling and recommendations made.
File note tips
Before we address some valuable suggestions, take the time to consider your file notes and why you’re recording what you do.
Do your file notes add value?
Do they provide context to the disclosures you’ve made and opinions you’ve offered?
Could an an independent person, grasp how you understood the client’s current circumstances, formulated strategies to satisfy their goals and objectives, explained why the advice was limited (or scoped) and the impact of that decision?
- if you made amendments to a file-note , show what was changed and record the date the amendment was made.
- file notes are not intended to replicate information contained in an SOA. Ideally they should capture any additional explanations to your advice and the client’s responses to your explanations, highlighting their reactions, behaviours and demeanour.
- embrace technology such as voice to text, voice recordings, meeting recordings and response to emails. You should always ensure your file notes are an accurate record of the advice process provided. Be conscious of what you’re saying and doing (and what’s recorded).
- Consider having the content of your notes confirmed by another attendee. More and more advisers are asking clients to sign their file notes, some advisers are sending a summary of their meeting/phone call/tele or video conference post the interaction to the client and storing this within the client file.