“Now this is the point. You fancy me a mad. Madmen know nothing. But you should have seen me. You should have seen how wisely I proceeded.”
— Edgar Allan Poe, “The Tell-Tale Video SoA”
Be afraid. Be very afraid.
In many respects, Halloween is very similar to a long-standing financial services tradition – the annual compliance review – where the ghosts of files past, and the dark servants of Compliance, return to haunt the adviser.
In this article, in the spirit of Halloween, we examine thirteen unlucky ways that video and audio recordings of client meetings can come back to haunt you. Even if you’ve so far eluded the siren’s call of technology and the video SOA, read on, your life (or rather your review result) may depend on it.
Background – why advisers record client meetings
The Covid-19 pandemic accelerated the existing trend for remote meetings – and now they are commonplace in financial advice. Software options abound for recording and/or transcribing virtual meetings.
Advisers in Australia need to demonstrate how they are meeting best interest duty and related obligations. Recording audio or video of client meetings and interactions can provide evidence of this. Unlike in the legal space, where Client Legal Privilege may be a foremost concern, advisers sometimes feel it is worth prioritising demonstrating best interests over client privacy.
“I cannot stress this enough. Your file notes may be far more important than you can possibly imagine”
— Abdul Alhazred, Alleged author of “The Necronomicon”
So what profound mistakes do advisers make?
What tragedies return to haunt them (and their descendants) through time?
There are thirteen common failures. We’ll address six in the text (but seven more will appear when you read this article backwards in front of a mirror).
1.Failure to obtain consent to record.
When reviewing a file with audio or video recordings, one of the first things we check is whether the client has consented to be recorded.
The subject is nuanced and complex, with many factors for Licensees and advisers to consider such as:
- Telecommunications (Interception and Access) Act 1979,
- Data sovereignty,
- Data security,
- Australian Privacy Principles,
- Individual state legislation about recording of private and public conversations,
- Data storage (particularly when dealing with large and unwieldy files).
Recording meetings can be good risk management, though, at a bare minimum, the adviser should secure – and the file should evidence – the clients’ consent.
Advisers sometimes say: “The video meeting software requires the client to consent to being recorded before they join the meeting”. However, this isn’t visible on the recording and, if it’s not, how are you evidencing that on file?
Some advisers tell us: “the clients consented before we switched on the recorder.” Compliance people are naturally trusting, and have no reason to be otherwise, but we still ask: “where is the proof?”
2. Inadvertently confirming an error, omission or misconduct
We recently reviewed a file where the Statement of Advice (SoA) omitted the page outlining the commissions payable on new insurance cover recommended to the client. A review of the video recording of the SoA presentation meeting showed that the adviser did not discuss the commissions with the client – as the adviser had not explicitly discussed the “cost of our advice” section of the SoA.
ASIC RG98 indicates that “failure to comply with disclosure requirements, including not disclosing commissions and other benefits or relevant associations or interests…” could potentially result in a banning order.
Aside from the glaring process issues apparent here, the fact that video evidence was on file meant that the failure could not be denied; the complete video record confirmed that no written or verbal disclosure had been provided.
It also confirmed that the adviser was oblivious to their failure to do so which, like in all classic horror stories, had terrifying consequences.
3. The audio/video contradicts the “contemporaneous” file notes.
Advisers use templates for file notes – we get it, it saves time, and assists in making sure nothing important is omitted or forgotten. Good advisers use consistent structures. Average advisers use amended precedents.
That said, the file notes the adviser retains should be consistent with the actual recording of the meeting documented in the file notes.
We’ve previously written about how falsely claiming a file note was contemporaneous can be seen by a court as misleading. Similarly, if the video or audio recording contradicts a separate written file note of the meeting, the ethics of the adviser become a compliance and conduct issue.
I’m sure you think that these failures are rarer than Zombie-viruses, but, in fact, they’re slightly more common.
In the prior example, our review confirmed that the adviser did not retain a separate file note of the SoA presentation meeting, so there was no contradiction or conduct issue. But, if the adviser had insisted disclosure was made and produced a separate file note confirming that “we discussed the fees and commissions applicable and the client understood and accepted them…”, that would have added to the seriousness of the contravention.
4. Devaluing your own advice process.
Many clients hate unnecessary or excessive paperwork and loathe “legalese” and sometimes legislation and guidance can seem unwieldy to enact in practice – for example providing and discussing Financial Services Guides and Product Disclosure Statements.
That said, we have reviewed many general or personal advice files where the adviser or authorised representative can be heard to be too informal in their recorded client meetings. Informality isn’t necessarily bad unless, for example, you commit the following statements to posterity:
- “I’ve given you links to the product disclosure statements, but nobody really reads those anyway.”
- “I’ve sent a link to the Financial Services Guide which is just something I have to provide you with by law.”
- “Don’t worry about the SOA. It’s just an arse covering document the Government makes us give you.”
Other common mistakes include:
- Implying that past performance can be replicated but then using the “past performance is no guarantee of future performance” disclaimer somewhere in the meeting.
- Providing “informal advice” with no supporting SoA or record of advice.
After more than a decade of reality television, please realise that audio recordings, and especially video recordings, pick up a lot and bring everything you say out into the open.
5. Overlooking client understanding
In ASIC Report 562, the Regulator outlined concerns about conflicts which FASEA addressed in the Code of Ethics and embedded Standards.
Standard 3, specifically, states that an adviser cannot advise, refer or act in any other manner where the adviser has a conflict of interest. Other Standards highlighted the need for client consent to benefits the adviser and principal may receive. And underpinning the Code and Standards is the need to confirm client understanding (or “free, informed and prior consent”).
We reviewed an SoA presentation meeting where the adviser made a recommendation that the client should acquire a separately managed account administered by a related party. As you can well imagine, addressing the fee structure, conflicts and consequences of the recommendation would require deft steps.
The adviser made disclosures and asked the client “do you understand?”
The client said, “not really”, the adviser laughed it off and moved on to implementation.
It is important to understand that video and audio recordings of advice presentation meetings make it very clear when clients have not understood the fees and charges.
6. TMI (Too much information)
This subject is too big to cover in detail.
However, we have reviewed files where clients make admissions (for example, suggesting that they are not telling the whole truth to Centrelink) or confirm that they are not conforming with the law.
This creates a natural conflict for advisers between an implicit “client legal privilege” and the adviser’s requirement to report misdemeanour.
Please appreciate that video or audio recordings bring these dilemmas into clear focus.
A final testament
“Some day…after I am dead, you may perhaps come to learn the right and wrong of this. I cannot tell you.”
— Robert Louis Stevenson, Advice Coach
Realistically, an adviser should assume that anything they say or write (be it an email, text message, face to face conversation or video call) could be used to assess their conduct or competency.
This should not be a cause for paranoia but rather, to quote the Prince of Darkness, a reminder to “be alert, not alarmed”.
That said, retaining recorded audio or video of client meetings on file takes the availability of information to the next level and allows a reviewer to shine a metaphorical light under the bed (and expose the monsters lurking underneath.)
But appreciate the consequences and implications of doing so. Recording client meetings for third party review is in a sense the opposite of client legal privilege – and may expose an adviser to a higher degree of scrutiny.
Recording meetings can be a great driver for positive changes to an adviser’s process, minimising administrative busy-work while maximising transparency. However, it you follow this path, be aware of where you might stumble and don’t walk into the dark unprepared.