Rebecca Jones looks at how to keep a client file compliant, uncovering some common pitfalls and easy fixes.
Compliance, while much maligned, is a necessary evil for financial advisers. This is particularly true when it comes to client files, as advisers are increasingly called upon to prove that they have followed all necessary steps to meet their clients’ needs and objectives.
However, for many advisers, a compliant, well-ordered file that documents every aspect of the pre- and post-planning process is not only a safety net, but an aid.
Thorough record keeping
A compliant client file should enable an adviser to clearly demonstrate that they have fully and correctly served a client and that the client has fully understood everything undertaken; an essential component of passing a Financial Conduct Authority (FCA) inspection.
How to write a watertight client file
However, according to Aileen Lynch, head of technical at Compliance First, some advisers are risking failing an inspection by skimping on the details. “The biggest problem is that there is often not sufficient information on the client in the file. A lot of advisers have known their clients for a long time and the information is in their head, but they’re not putting down on paper,” she claims.
A lack of information on a client can prove problematic when trying to prove that you have met their objectives, Lynch explains, as objectives can often be opaque and change over time.
As a starting point, Mel Holman, compliance consultant at Compliance and Training Solutions (CATS), recommends that advisers file all their fact finds as, while it is not an FCA requirement, she claims fact finds can help a third party decipher the motives behind a decision.
Lynch also recommends advisers record as many of the ‘soft facts’ about a client as possible. “Don’t just go for the big stuff; go for the personal details because a lot of it is about establishing what the client’s aspirations are going forward. That needs to be documented,” she insists.
Accurate and up-to date client information is arguably the key to a compliant client file, which is why David Hindle, IFA at Sterling Asset Management Services, goes to great lengths to record every interaction with his clients. “You’ve got to evidence everything. These days I make copious notes, I will come out of a client’s house and write loads of notes or ring home and talk into my answering machine for as long as it will take the message,” he explains.
While laborious, Hindle says this extensive note taking is necessary as all too often there is “a gap between what the client has asked you and what you think the client has asked you.” Thus, Hindle ensures that every telephone conversation or seemingly throwaway comment is recorded and stored in a client’s file.
Robust, comprehensible systems
While recording all conversations with your client is important, Rebecca Prestage, head of policy at The Consulting Consortium, insists that advisers should also pay attention to the systems and processes that lead to them. “You have to make sure you are not just following a process. You need a process, but if it doesn’t lead to a good outcome, saying that you’ve followed the rules isn’t necessarily a good thing,” she says.
A key consideration, she claims, should be whether or not all of the systems that an adviser uses enable them to capture and record all the information they need. “For example, she explains, “in a CMS you might have a list of boxes to tick for a client’s occupation but there isn’t the option to enter the exact information so you have to choose a ‘best fit.’”
According to Lynch, advisers should also ensure that they are using systems that produce enough information to support and evidence their decisions, particularly when choosing a fund. “Insufficient research into products is another issue,” she says, adding “tools like Synaptic Fund Research are the best to use as when you put in your information you get three or four sheets of different products so you can easily demonstrate that you’ve looked at the whole market.”
This is important not only to show why you have chosen a fund, but why you have not chosen another as, according to Holman, the regulator is often as interested in the decisions that an adviser has not made as the ones they have.
As the use of technology in every area of financial planning increases, Prestage adds that advisers should also ensure that the different softwares they use are aligned and can work together.
She explains: “If you’re working across platforms, for example, you should make sure that the technologies you use through the whole process can talk to each other.”
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