“But I know seeing is believing
I can’t believe what I’m seeing”
— Midnight Oil – “Seeing is believing”
A critical obligation
The speed with which Licensees and Advisers have adapted to social distancing and other restrictions is impressive.
We’re noticing that advisers are responding to the prospect of remote reviews with far more enthusiasm than they greet an on-site review.
They shouldn’t.
Quite apart from the fact that on-site reviews are manifestly better – in terms of education, immediate remediation, training, engagement and operational risk assessment – they provide advisers with a greater likelihood of achieving a better result. The reasons might surprise you.
On-site reviews generally lead to better outcomes for advisers because most advisers’ records (particularly their digital records) are generally incomplete, poorly managed and disordered. These limitations can often be mitigated on-site by attentive staff but, when their compliance is assessed purely on the basis of the information they retain and the records they keep, few advisers do well.
Here’s what we’ve found already.
Back-office basics
In a recent article – “Managing the challenges of social-distance” – we asserted that from, a commercial perspective your approach to managing client data is the best indicator of the success and sustainability of your business.
It’s not sexy, but your record keeping processes are the most reliable indicator of whether you’ll prosper in either a connected, or disconnected, environment.
From a Reviewer’s perspective, your obligations are clear. Both Licensees and advisers are required to retain adequate records of the advice and services they provide; the former have licence conditions and the latter have this obligation as a consequence of their appointment or authorisation. While advisers’ obligations are often articulated in their Licensee’s Compliance Manual or their Employment or Authorisation Agreement, FASEA Standard 8 explicitly addresses their professional and ethical obligations to retain and secure client records.
You may think that you already retain and secure this information but, as we pioneer compliance by social-distance, we are surprised at how few advisers – even those with mandated systems – can locate, access and share the information they hold.
You may think this is a problem for smaller licensees, or for legacy-laden advisers, but even many businesses that have implemented CRM or wealth management software have found that their use of the technology and, in particular, their information management processes, limit their capacity to act as flexibly and efficiently as their Business Continuity Plan promised.
What we’re finding, as we’re doing a greater number of remote reviews, is that advisers’ capacity to provide us with relevant information is often outside their control. They can often locate the most recent Statement of Advice and regulatory documents, but struggle to confirm key conversations, transactions and services. Part of this is a result of legacy issues – disconnected systems and inconsistent data management – but their reliance on an internal ‘corporate memory’ works to their disadvantage when that person is not in their office. In a lot of cases, staff have so adapted to the practice’s way of doing things that they don’t appreciate how disconnected their records are until we, or another external party like ASIC, request client records. Until this happens, advisers are blind to the issue. My advice to those advisers is that if it’s difficult to provide me with the whole client file, then maybe it’s time to change your systems. – Ben
Honestly, effective record-keeping should be a high priority for you regardless of how you choose to provide advice.
On-site reviews provide advisers with some key advantages.
First, they can use the introductory session to position their approach with the Reviewer and help direct their focus.
Second, they can facilitate the review by locating documents and records needed for the review.
Third, they can address issues, gaps and omissions in real time as they are identified (engaging internal staff to assist the Reviewer).
These advantages no longer exist when an adviser is reviewed remotely and when their compliance with the financial services laws is determined by reference to the documents and information they have stored and retained on their platform. In our experience, adviser records are often disordered and incomplete. In our experience, few advisers (or Licensees) appreciate how poorly they manage client data or advice records.
One of the most frustrating issues is that advisers, even in the same practice, using the same CRM/system often have inconsistent approaches to managing records. Some use threads, others don’t. Some upload file-notes, others save them on their personal drive, some keep them in email. It makes their review slower, and often results in a worse result, so I’m surprised that more practices don’t have a ‘house view’ or a published methodology of how to record and save information. – Ben
The legacy issue is an often overlooked reason for poor record keeping, but poor identification and poorer implementation are probably greater contributors to this situation. For example, we’ve encountered situations where we’ve relied on a Licensee’s assurance that they had mandated a common system and a common record-keeping methodology, only to subsequently learn that neither decision had ever been communicated to their advisers.
As much as advisers value your intellectual property or their capacity to connect with their clients, the real value of their advice practice is the client data they (should) hold and the relationships underpinned and developed through the use of that data. Effective information management (collection, retention and storage) and the ability to use and apply that information, is an adviser’s greatest asset and few businesses recognise its critical value. Too frequently they ignore the value of their data, neglect it, or worse still, surrender it to others. – Sean
This concern may be highlighted by the collapse of CCUBE, a financial technology provider that recently went into administration. Quite apart from the human and competition impact of their collapse, the 70 practices using their software may now have to review their contracts to confirm ownership of the data held by the provider.
Is it returned, deleted or retained (in an aggregated or anonymised form) as an asset of the insolvent company?
It’s not an issue limited to any single technology provider but one which Licensees and Advisers must address as they embrace more and better technology.
Don’t misread our intent. We understand you’re adapting to a new paradigm but we recommend that you consider your historic and core obligations with renewed energy.
For commercial, and compliance reasons you need to properly maintain, manage and protect the information you hold about your clients.
It might not be the most convenient time, but now is the best time to start.
Our Tips
- Document your data management/client records policy (your “internal standard”).
- Determine, and communicate, file naming protocols and file structures.
- Use threads and a consistent approach to retaining supporting documents in the digital client file – research, consents, FDS and file-notes.
- Upload emails into the client file.
- Assess your Standard against regulatory requirements and international standards.
- Train staff.
- Audit client files for consistency with your internal standard.
- Identify, and fix, gaps before you provide access.
- Talk to us about how to optimise, manage and document your new arrangements or engage external experts like Elixir Consulting for assistance.
ASIC’s perspective
“It is very important that you continue to keep records of the financial services you provide during the COVID-19 period. Your records should, for example, allow you to demonstrate that you have complied with the best interest duty and related obligations, which will be critical in the future if you receive a client complaint or if your file is audited. Records include more than just the fact find and SOA. They include other documents that support your advice such as working papers, research and file notes.”
— COVID-19 information for financial advisers and advice licensees
We refer your attention to ASIC’s recent update “COVID-19 information for financial advisers and advice licensees”.
In addition to reinforcing our observations, and reiterating that the law provides you a degree of flexibility about how advice is provided, they emphasise that “as difficult as the operating environment is, advice licensees must remain focused on meeting their general obligations [including] the oversight of advice.”
Given their suggestion that licensees should consider conducting remote reviews, it’s even more critical that advisers review, and improve, their record keeping and data management processes.
If you need help, or market-leading adviser audits, we’re well-positioned to help you.
