The 3 Tiers Of Documents That Advisory Firms Retain To Stay Compliant (And Better Serve Their Clients)
Maintaining accurate documentation is unlikely to be at the top of many consultants’ favorite tasks. However, proper and accurate documentation will not only keep the advisor and their firm out of trouble with the relevant regulators, but also help the advisor fulfill their fiduciary responsibilities to their clients and provide their actions and recommendations in the event of future client complaints. It suggests that creating and maintaining relevant documents is not only a regulatory requirement, but also a business imperative.
In general, documents relevant to a financial advisory firm can be thought of at three levels: documents required by the regulatory requirements of the practice (Level 1), actions taken and client relationships (Level 2), and documents explaining the advisor’s recommendations or actions (Level 3).
Level 1 documents required by the administrators may include the advisor’s familiar and signed client agreement, Form ADV Part 2 filing acknowledgment, conflict of interest statements, privacy notices, and other documents as required by various governing bodies. The goal of this stage is to ensure that the documents required for legal and regulatory purposes actually reach the customer, and these documents are usually filled in the company’s Internet or CRM.
Next, Step 2 documents the catalog interaction with the client and may include meeting notes, email communications, and analysis copies sent to the client. At this stage, a few important things to capture are what happened, when it happened, and who was involved. These details create an authentic timeline of the client relationship that the consultant or client cannot reconstruct from memory alone (which can be valuable evidence if a client (wrongly) says a line that a consultant did or did not suggest).
Finally, Level 3 documents include the consultant’s rationale for recommending a particular course of action. While it is important to understand what recommendations were made (Level 2 documentation), writing down the reasoning behind them will give the consultant insight into their thinking if the recommendation is revisited online and provide useful background insights if another consultant or team member begins working with the client.
While financial advisory firms may have established Level 1 documents (although they may need to be updated from time to time), implementing a process within the organization to create Level 2 and Level 3 documents ensures that these are produced consistently. For example, building in time before client meetings (to document the thinking behind their feedback) and afterward (to document decisions made and the reasons behind them) can ensure these activities don’t fall through the cracks. Also, while some consultants may enjoy the writing process, companies may encourage less skilled presentation tools (such as Windows Talk-to-Text and Pulse360) to organize their ideas and avoid procrastination.
Ultimately, the bottom line is that keeping accurate records is not only about staying in compliance with relevant regulations, but it’s also an opportunity to better serve customers and promote business continuity by keeping accurate records of customer communications and recommendations and recommendations and their reasons!
