FMA puts spotlight on paperwork

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Record-keeping has been a big issue for many advisers and can underpin many other problems, says an adviser compliance expert who used to work in monitoring for the Financial Markets Authority.

Tuesday, December 31st 2013, 6:50AM 2 Comments

by Susan Edmunds

The FMA has issued another guidance note, making clear AFAs’ obligations in terms of client communications and record-keeping and outlining when written advice must be given.

It says it has noticed from its own discussions with advisers that there is a vast range of approaches taken to documentation. “This includes varying lengths of statements of advice, suitability analysis and records on client files.”

Advisers are required under the code to provide clear, concise and effective communication for clients – but sometimes proving that they have done so if called upon by the regulator can be a hurdle.

The guidance note says adviser communications, whether written or verbal, can be classified as clear if they are in plain language, are logically ordered and easy to follow, highlight important information and explain complex information in plain terms, with suitable explanations of jargon.

Whether communication is concise depends more on how long it would take someone to read and understand a document, rather than the actual length, and a document’s effectiveness is assessed as whether the communication provides adequate and accurate information for clients deciding whether to follow an AFA’s recommendations.

The FMA says the way it regulates advice is the same, whether delivered by post, phone, email, video conferencing or in person.

But it says that advisers must keep all information about relevant matters. “In general, most client interactions are likely to be relevant to the advice that is given and should be recorded clearly by the AFA. The level of record-keeping will vary in each case depending on the nature of the services being provided.”

Gavin Austin, of ABC Compliance, said good record-keeping was fundamental to the client care provisions of the Code of Professional Conduct for AFAs.  It did not matter how good communication with clients was if there was no record kept to prove it.

He said often when there was a problem identified under code standards six through nine, which cover things such as behaving professionally and the suitability of services, it was because there were problems with an adviser’s record keeping.

“You might be complying but you need to be able to show that you are complying.”

He said the FMA had issued a flurry of guidance notes towards the end of this year and could be preparing to take a harder line with advisers who did not comply in the new year. “When the FMA puts out a guidance notice, it’s a good idea to take notice and look at your practice.”
He said the new version of the code required that advisers who had a meeting with clients and did not update their information on their circumstances and goals provided a substantive diary note as to why.

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