Protect your business with thorough documentation

By Susan Yellin | December 18 2017 07:00AM

Photo: Freepik

Document, document, document. That’s the legal advice from litigation lawyer Ellen Bessner to financial advisors, especially when it comes to dealing with seniors and their families.

Bessner of Toronto-based law firm Babin Bessner Spry, told the November summit of the Independent Financial Brokers of Canada (IFB) that virtually all the files she has right now on her desk deal with cases of complaints by seniors against advisors.

Bessner suggested that one of the reasons for this is because regulators have made seniors, identified as those over 60 years of age, as a priority for them when it comes to financial advisors who sell mutual funds and other securities, noting that there are far fewer complaints against advisors who solely sell insurance.

The problem with this is that the financial industry in general doesn’t have the wherewithal to handle the number of claims suddenly coming in to them.

“The best dealers, the biggest bank-owned dealers, the insurance industry is not equipped,” she said. Those advisors who choose to look after a senior’s complaint by themselves generally “muck it up” and end up having to call a lawyer to help them out.

Protect yourself

“You should make it a priority to protect yourself,” Bessner cautioned. “I want you to protect yourself. The regulators want you to protect your clients,” she said. “What I want you to do is protect yourself against them.”

In September 2016, the Ontario Securities Commission announced the formation of a seniors’ expert advisory committee, of which Bessner is a member.

The purpose of the committee is to advise the OSC on securities-related policies and developments that affect older investors.

Bessner said judges and regulators come to the table with a biased opinion in favour of elderly investors, especially older women. When older women come before a regulator to complain, they are immediately assumed to be truthful even though regulators admit the clients’ memory may not be 100 per cent accurate, she said.

The one way advisors can bolster their side of the story is to prove that they have taken notes during meetings with the older client. “The assumption is with any professional – lawyer, doctor, accountant, dentist – if you don’t have it in writing, if you don’t have a note, if you don’t have a letter or a document to support your version of the story then your story is not believable. However, she [an older woman] doesn’t have a document; she doesn’t have a note and she tells her story and in contrast to yours, she wins.”

Seniors are also seen as having a short-time horizon. But many seniors, especially women, are now expected to live to 90 or beyond, meaning they have a 30-year time horizon, an important consideration with financial issues. Bessner agreed however that those who are around 80 years old or more, do have a short time horizon and should be put into a different classification.

Bessner has written a book, Advisor at Risk, a Roadmap to Protecting Your Business, outlining how advisors can manage risk. 

She suggested that advisors learn the complexities of powers of attorney and joint accounts and raise a red flag for anyone who asks for fast cash.

As clients age, they often don’t want to come in and see the advisor as often as they should. Those who are cognitively impaired don’t want to admit it, so they pretend there is no issue, putting greater pressure on advisors to make sure they have a paper trail that will keep them onside with regulators, she said. 

Also getting older are advisors, many of whom haven’t even thought of putting together a succession plan for themselves, said Roland Chan, director of operations at Liland Insurance Inc. and founder of Find BoB Ltd., a provider of transition management platforms for the financial services industry.

Silver advisor tsunami

Chan called the “silver advisor tsunami” a major disruption for many clients who have come to rely on financial advisors for help.

He noted that in Canada there are more than 12 million households with about $130,000 each in investable assets who rely on independent financial advice. 

“Not only are consumers reportedly happier when they engage you for financial advice, but they also save twice as much and have four times as much in investable assets. Moreover, if you look at independent financial advice … a couple of years ago we generated $19 billion directly into GDP,” said Chan. “That’s more than the pharmaceutical industry, more than automotive manufacturing and it’s more than the aerospace industry.”

The problem lies in the fact that about $1 trillion worth of assets are controlled by advisors in their 60s who have no succession plan. (The average age of a financial advisor in Canada today is said to be about 59.) If the advisor should die suddenly or become disabled, the client is left out in the cold.

Perfect storm

“We’re in jeopardy of heading towards a perfect storm where consumers have discovered their advisors have left them in the lurch and they then take their business along with your assets across the street to the banks,” said Chan.

“This creates a huge friction problem between agents and advisors and their firms. According to a John Hancock study, 80 per cent of agents and advisors feel that the industry is doing a poor job of supporting their transition. Seventy-five per cent of those same respondents…indicated they would switch to a competing firm that did support their succession transition.”

Among the reasons advisors cite for not having a succession plan include that they don’t want to retire, current valuations are too low and the biggest reason is because they can’t find a partner.

Chan said the antidote to the succession problem is not matching advisors who want to sell to those who want to buy.

“Getting advisors to work together today -- focus on case splitting -- joint case work, is actually a logical way to address this problem.”