The client file

Something that should be relatively unambiguous is often the source of plenty of debate when licensees are looking at historical matters and responding to requests for "Client Files".

This topic can come about when considering (for example):

• Responding to a complaint, particularly where a third party (e.g. the client's lawyer) may be involved and is requesting a file;
• Preparing for the resolution of a systemic failure or a remediation program;
• A request for a file from a regulator;
• Responding to an AFCA matter; and
• A request from another licensee for a client's advice if they have transferred to a new adviser.

Unless you are a risk, compliance, or remediation professional (and even if you are), you could be forgiven for feeling a little confused when faced with the compounding definitional and guidance changes from a decade of regulation, largely grounded in changes initially passed in the Rudd-era administration.

This has seen (at least) FoFA; RG175; RG256; RG 271; RG277; changes to the Industry Ombudsman and AFCA; findings from the Royal Commission; and recommendations and commentary from the Levy review. All of which have impacted, directly or indirectly, intentionally or unintentionally, what expectations parties have about Client Files.

As a licensee, you will have policies, procedures, systems, and tools to make sure you comply with the obligations to provide advice, at the time of that advice.

These are relatively entrenched and, regardless of your opinions on the volume, structure or effectiveness of these documents, should be clear on what needs to be provided and when.

The real questions start to emerge when you look back at a matter (particularly when advisers or advice support staff have changed) and need to be able to stand behind advice provided historically.

Oceanic Consulting Group has worked across many licensees, to support the review of hundreds of thousands of pieces of advice, covering multiple regulatory regimes and time horizons.

We all know that yes, there were a few bad apples that needed to be dealt with; however, the observation of anyone who has worked on most major remediation programs is that the overwhelming majority of issues seen by remediators or those handling client complaints or litigation comes down to poor documentation, either at the time of advice or in the subsequent retention of documentation.

When we get down to brass tacks, any third-party assessment of your advice is going to be based on facts and evidence. This will be true, regardless of whether the client is retail or wholesale.

This may sound obvious, but in practice, it means there can be no ambiguity in the documents that were provided to the client, if you want to rely on them at a future date. They need to stand on their own and not rely on further elaboration to understand why advice was provided as it was.

All too often, particularly in the retail advice space, we see that advisers had the right intentions when providing advice, especially tailored and complex advice, but have failed to document key discussions, logic, or considerations for that advice.

This is particularly true where there has been a variation of the strategy or risk profile, which ultimately ends up driving compensation payments to clients.

So what needs to be on the (retail) Client File when I go back into my records?

Generally, a licensee will be requested to provide three to four documents that form a Client File:

• A contemporaneous client fact-find and risk profile;
• The advice documentation (Statement of Advice or Record of Advice);
• Relevant file notes to provide context and workings' and
• If relevant (and/or separate), an Ongoing Service Agreement (or similar document).

A contemporaneous client fact-find and risk profile:

• It is important that advice can be traced back to a documentation that clearly outlines to the customer's risk profile, goals, objectives and relevant personal circumstances (RPCs) that need to be considered.
• It needs to be up to date and close enough to the advice to be relevant.
• Goals and objectives should be the client's, preferably in the client's own words and licensees should check on overly specific or product-based goals.
• In the absence of a contemporaneous set of documents in this respect, which ever third party is reviewing the file for whatever reason, will need to make assumptions as to what would have been in the document. These assumptions will need to be client-centric and often relatively general, which will ultimately expose licensees to risk for specific and complex advice.

The signed advice document (SOA/ROA).

Your advice documentation will of course need to comply with all the relevant compliance requirements at the point of publication, including the relevant provisions for Best Interest Duty.

When relying on advice documentation as a reference point, particularly for matters where the advice is being challenged, the documents should seek to stand on their own and not have to rely on internal file notes when read cold by a third party.

Importantly, advice documentation should clearly highlight:

• The results from the client fact-find work and their risk profile (or in the case of an ROA, be clear which relevant SOA this is documented in);
• Any scoping of the advice, ensuring you keep records about what advice the client was initially seeking (explicitly and implicitly), and how you decided which advice topics would be included or excluded from the scope of advice;
• What RPCs have been considered in providing the advice, particularly highlighting those that necessitate scoping, a deviation from a standard strategic asset allocation strategy, or house view on a stock for the client; and
• The advice, clearly articulating why specific advice is right for the client, links clearly to the RPCs and the client goals and objectives and is able to be easily understood, without ambiguous language. For example: "You have instructed us that you do not want to sell your holding in BHP due to XYZ. We have considered this when constructing your portfolio; however, due to the size of the holding, this means your portfolio is and remains overweight to growth assets and in particular Australian equities."

File notes can be used to support these positions with internal notes and workings; however, as a rule of thumb you should ensure the advice documentation can stand on its own and does not need to be read by a third party in concert with those file notes.

Where there are amendments to the advice, either prior to, or at the time of implementation, clear documentation should be kept, ensuring you can evidence the agreement of the changes with the client and a clear link back to the RPCs.

As a rule of thumb, a signed document is going to hold more weight than a draft under scrutiny.

File notes

• File notes are important for providing context when reviewing files historically and form an important part of your record keeping as a licensee;
• File notes should be detailed and comprehensive and should support the licensee with con- text and give workings for advice provided to the client;
• Licensees may be requested or choose to provide file notes as part of the Client File, to support third parties to understand why the advice was provided; and
• It is important to contemplate, however, that file notes may or may not be considered, partially or fully, depending on the precise nature of the matter by another party in reviewing a matter. It is therefore vital for licensees to consider, that unless advice documentation is comprehensive, a file note may not end up being as useful as you first think.

Ultimately, depending on the exact nature of a matter, other documentation may also be useful, or even requested, to ultimately form part of a Client File (e.g. emails with the client), and may give context to a specific matter. However, when it comes to the crunch, a good Client File is going to rise or fall on:

• A good quality, up-to-date fact find with clearly identified goals, objectives and relevant personal circumstances;
• An easy-to-understand, signed advice document, that clearly links back to client goals and clearly documents where RPCs have been considered and have scoped or directed advice; and
• Clear file notes, to help give context to the matter and answer any questions.