The September issue of The Insurance and Investment Journal includes a somewhat stark looking two-page checklist of duties and responsibilities of financial advisors, from the fiduciary standpoint which relates to errors and omissions (E & O) business insurance coverage.
It serves as an update reminder of what are the areas of service expectation, primarily for the advisor, but also implicitly for the consumer. The user of financial advisory services could benefit to some extent in being apprised of all the potential issues for which their advisor could be taken to task, as well as comprehending the challenging boundaries of performance to which advisors are subject on an ongoing, and essentially increasing, basis.
Here are examples of duties and responsibilities which can help protect financial advisors from the potential of lawsuits:
- Recording the details of date, time of day, length of call, and nature of client communications
- Keeping written copies of investment instructions and profiles
- Documenting all correspondence to or from clients
- Determining with the client the latter’s needs and objectives concerning investments or insurance
- Making note of recommendations made to clients based on their best interests
- Keeping files notes of client assets and liabilities
- Providing clients copies of signed forms as well as requested (valid) documents
- Keeping up to date with compliance requirements
- Having a process to react quickly to client requests insofar as investments or insurance claims
- Ensuring methodology for client file updates meets with E & O insurer requirements
- Keeping personal files, documents, proposals, and computer information protected; this includes inactive clients
- Confirming, with written evidence, any client order or request or modification; this also means obtaining signed client authorizations quickly
There are more elements in the list. While there is clearly a degree of overlap, each point does stretch the boundaries of advisor responsibility.
In the unhappy event of a client threatening to sue, the following applies:
- Do not try to prove innocence to the client, nor admit error, nor offer compensation
- Tell the client the matter will be referred to a firm’s compliance officer or legal advisor
- Advise the E & O insurer of the situation A.S.A.P., and advise staff of deference to firm’s attorney or E & O insurer
- Take steps to ensure the completeness and security of the client file (while maintaining a hard copy)
The last point made is to be sure, at all times, to send written correspondence of affective information or actions with potential or actual impact on the client’s finances.
It’s stunning in this age to realize that not long ago errors and omissions coverage was little more than a blip on the radar of financial advisor practices. Now it’s an integral part of the culture.