The importance of file notes – who said what?
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By Joel Ronchi, CEO, April 2023
At Fourth Line, this is a conversation we have often with licensee compliance managers and their advisers. The lack of contemporaneous file notes results in the “advice story” not being congruent across the supporting documentary evidence.
Since the inception of the Breach Reporting Obligations in October 2021, Fourth Line has reviewed almost 5,000 SOAs and the documentation supporting the advice creation process. Through this analysis, it is evident that in almost one-third of cases, there was a lack of sufficient documentary evidence to support certain aspects of the advice provided.
* When the asset allocation variance was greater than 10% from the client’s risk profile, there was no documented reason that adequately explained it.
* Insufficient evidence supporting the evaluation of alternative strategies and/or products and how the recommended strategies and/or products considered were considered superior to the alternatives.
* Insufficient evidence identifying the client’s objectives, financial situation, and needs and how the recommended strategy left the client in a likely better position and was fit for purpose.
In some cases, advisers acknowledged that they had “left the information in their heads” because they knew the client so well. Others acknowledged the issues were a result of lax advice processes.
Either way, neither is a defence against a claim through AFCA.
As noted in a recent Professional Planner article “… (AFCA) looks past the SOA as far as it can into the totality of an adviser’s communications and interactions with a client,” and “… file notes are a critical way of recording the development of the relationship between an adviser and a client, the appropriateness of the advice provided, and the client’s understanding of it.”
The benefit Fourth Line provides to our clients is the peace of mind created because the Fourth Line advice assurance platform looks at the breadth of the advice creation process and the evidence collected, not just the SOA (which is the culmination of the advice creation process.)
Fourth Line is a rigorous RegTech risk management and compliance system for advice practices, dealer groups and other wealth management participants. Fourth Line uses algorithmic approaches to simplify the complexity in advice reviews whilst maintaining human oversight, empowering compliance teams to coach and develop strong advice behaviors through data driven insights from advanced analytics for adviser, practice/dealer group and industry benchmark comparison with centralised document storage and access to meet regulatory needs.
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