Rethinking the not so humble file note – Part 1

In this two-part post, we’re going to look at the not so humble file note and some ways we can enhance record keeping when it comes to client meetings/conversations.

The file note, by virtue of its longstanding and largely unchanged role, is a ripe area for reconsideration.

This post will cover a range of very conventional options for improvement which are more process oriented, and really could’ve been implemented anytime in the last ten years. Part two will cover more technology based ideas.

Why are we writing file notes?

Whilst an important part of any client file across any service industry in the financial advice context the primary driver for the preparation of file notes is compliance and legal in nature.

Was the client aware of the risk they were taking with their portfolio? Did the client understand the products they were purchasing? Whilst those reasons are no less important now, in a post Royal Commission context we are increasingly concerned with what services were provided and how they align to client goals. Was a review offered? Delivered? How so? What other services were provided? What record is there of client engagement?

A part of the Kaizen management philosophy is to always ask ‘Why’ we are doing something? We shouldn’t assume something couldn’t be improved upon until we understand it, and sometimes what seems obvious isn’t.

So, we took a look at some file notes and what was in them. After working through them, we considered how we may better capture those things being written down, manually, and by memory. Some of those items included:

• Capturing client goals and objectives.
• Capturing client details.
• Client education provided.
• Documenting level of comfort with investment performance or a risk profile.
• Documenting duty of disclosure requirements have been met regarding insurance.
• Documenting risks and disadvantages disclosed and client comfort.
• Documenting discussions regarding strategy options presented.
• Documenting action items for client or adviser/practice.
• Documenting changes of circumstances (or lack of changes if the adviser is considering an RoA).
• In the case of an RoA file note, documenting recommendations, risks/disadvantages and remuneration.

Without discounting the importance of recording the above, file notes are:

• Time consuming to write;
• One sided in nature, which opens the door to dispute (if limited);
• Can be inaccurate, as they’re based heavily on memory; and
• Can be forgotten, especially in urgent cases which are progressed to SoA.

There are lots of options to enhance the outcomes we’re trying to achieve, whilst mitigating the challenges, and overall improving efficiency and/or the client experience (CX).

Analogue goes a long way

There are a range of low-fi solutions which can go a long way to helping solve these problems.

Use a meeting agenda

Tried, true, simple, and effective. An agenda can be standardised for an appointment type and included in a standard meeting invitation. This needn’t be an A4 attachment, but simply dot points of what will be covered.

Do clients appreciate having an agenda of what will be discussed? Some will, some won’t care, but nobody is going to be bothered by it. At no material cost, you’ve improved record keeping and client experience.

Depending on the practice structure and your priorities, it may be worthwhile to tick the items as you cover them, initial the bottom, and scan a copy with the advisers’ initials afterwards. Does this replace a file note? Of course not. Does it supplement it well? Absolutely.

Confirming key aspects via email

If you think about it, file notes pre-date email. When FSR kicked in email was far from universally adopted, only accessible from a desktop, and checked rarely by today’s standards. Now emails can prompt a response within a couple of minutes any time of day. Things which may have previously been unhelpful to confirm by letter or even email in 2001 are well overdue for reconsideration. A basic email template covering key aspects following a meeting or phone call which would normally be file noted is a simple strategy, yet not done often enough. There’s a balancing act here, too many emails would annoy the client but when the process depends on an outcome a confirmation in writing is a logical step consistent with most clients’ expectations. Items that lend themselves to email confirmation include:

• Scope of advice.
• Requested deviations from recommendations.
• Verbal advice (ie: RoA).
• Acceptance of risks with cancelling/reducing cover.

These confirmations needn’t delay the advice process (which is lengthy enough as it is), any more than a file note would. But in doing so, we give the client clarity and the opportunity to respond right away if there has been a misunderstanding.

Have an advice philosophy

A documented process which details the advice you give and why you give it is harder than it sounds. It takes time to distil, it takes time to get clarity on, test/refine, and review periodically. However, once completed it’s something that can underpin your record keeping. If done well, it also lends itself to client facing materials that can become pre-reading or educational resources that supplement the record keeping in your file note.

Consider the example where a client complains that their portfolio has dropped significantly, and you said you would watch the portfolio and sell before things went too bad. A file note of the conversation would be your first defence. However, in this case, you’re trying to argue that you didn’t say something, which is harder to prove. An advice philosophy that documents and substantiates your view that investing is for the long term and you don’t react to market movements would be a strong supplement to argue that you never say that. If a client-friendly version was shared with your client, it would go even further.

Use standardised resources

Many advisers use resources in appointments to explain concepts. This may be a standard diagram, reference to a market history chart, or a personal favourite: The Russell Investments Cycle of Market Emotions (2019 edition here).

Standardised resources, with a documented process that covers its relevance and key points that get covered every time, make for a useful addition to the file note process. Again, a file note can refer to these and this can be templated to give the adviser a head start. (eg: We discussed the importance of being comfortable with volatility and the benefits of our bucket strategy. Used our Bucket Strategy flowchart (see advice philosophy) to explain concept. Jane asked … . John expressed … .)

Use client engagement tools

Client meeting engagement tools like our very own Life Goal Cards, or digital tools such as Astute Wheel or XPLAN’s Engage, can help go even further. For something analogue like Life Goal Cards, a simple photo of the outcome forms a part of your record (which usually includes time and location taken), doesn’t replace a file note, but would augment it in a way that takes no time and would be very difficult to refute. On the software side, any subscription-based software should keep a verifiable time/date stamp of the session, which also builds to the robustness of record keeping.

Leverage video

Extending some of the above strategies, you can go further by turning key aspects of the advice process into a video. My favourites include a video presenting the relationship between risk and return, and another explaining duty of disclosure. There are lots of benefits to this, including:

• Building perfect consistency in how important and high-risk concepts are explained.
• Allows language to be a bit tougher, without the adviser having to be the tough one. This circumvents the temptation to soften language for fear of impacting the client-adviser bond.
• Allows for graphics to be used to explain key concepts, going beyond what an adviser could draw or explain.
• Streamlines file noting, as notes can simply state a video was played, and then focus on the confirmation of clients understanding and any questions/comments.
• Gives the adviser a minute or two to make notes and collect thoughts.

You can get these developed using a local professional or through a freelancer, or my favourite of the off-the-shelf option here: 3genies

Going beyond analogue and into the digital

Check out Rethinking The Not So Humble File Note Part 2 where we’ll be covering technology-based methods to enhance record keeping, efficiency, and the client experience.

Further reading: Sean Graham at Assured Support on Advice File Notes and Adverse Inferences which includes some foundation principles for the content of a classic file note.