What needs to be documented?

By Donna Glasgow | August 19 2011 08:01PM

Documentation is an advisor’s best tool to protect against errors and omissions claims, but what needs to be documented? Joanna Reid, vice president, consumer practice with Marsh Canada outlined some key information that advisors should be preserving in their client files during a presentation at CIFPs annual conference in June.

“Customer needs and exposures, coverage offered and quoted, responses to questions, customers refusal to follow recommendations,” should all be taken note of, she said.

To illustrate, she presented a scenario where the advisor recommends that their client buy a one million dollar life insurance policy and has given five reasons why they think that’s the appropriate policy. If the client comes back and says, ‘No I’m fine with a $150,000 policy’, then the advisor should ask why and note down their reasons, she says.

“Whatever they say to you, document that. Put it in the file…” Ms. Reid recalled one case where a man bought a policy and after his death his daughter filed suit against the advisor because she found the policy wasn’t big enough. “She said, ‘My Dad always bought a Cadillac. He never bought the Pinto, so if he bought the Pinto it’s because you didn’t actually properly advise him as to the product and what he needed to do.”

Luckily the advisor had kept records about the conversation, his recommendation and the client’s refusal to follow that recommendation, so the suit was defended successfully. “But as you can imagine, if the documentation of the conversation with his client had not been in his file, that would have been a lot more challenging to defend…”

Ms. Reid says the documentation could be a sign off or a follow up letter or an email stating what was discussed; the advisor’s recommendation; the client’s response; and the action taken. “The more that you have in your file, the better it will protect you if a claim comes forward.”

No post it notes

When adding information to your file, do not use post it notes, she advises. “The reason is when you use post it notes, over time, the stickiness wears off, things fall out of files.” Also, do not put undated information in your files and always try to have an email backed up, she says.

Ms. Reid also recommends avoiding paperclips in files. “The problem with paper clips is that when you have stacks and reams of paper on your desk, they pick up other sheets of paper. So things get misfiled or misplaced.”

Credibility and professionalism

When a claim comes forward, the first thing that happens is either the advisor’s compliance department or the E&O insurer is going to ask for a copy of the file. How that file looks to the third party who is examining it “will speak to your credibility and your professionalism,” she says.

For example, several years ago there was a case where the advisor had notes on a cocktail napkin in the file. “If you have things on post it notes or cocktail napkins, it just shows your professionalism or lack thereof. So that’s something to be aware of when you’re doing your files,” says Ms. Reid.

Files should be complete enough to recreate the transaction, she adds. “You want to make sure it is complete enough so there is no situation where something could be misconstrued…This is critical if the agent has moved, died or changed professions,” she adds.

She advises developing a risk management program specific to your clients and office. “In the case where you employ other individuals, it is not only important to follow the rules yourself in terms of file maintenance and documentation, but also to ensure that your staff is doing the same. Make sure that office procedures are followed by all employees.” To accomplish this, staff training is critical, she concludes.


Donna Glasgow