Advice to advisers: Put it in writing

[Bylo Selhi]

Advice to advisers: Put it in writing [Toronto Star, 09Oct05]

Harold Geller is a litigation lawyer with an unusual specialty. He sues financial advisers for malpractice. This gives him the ability to see where financial advisers run into trouble with clients. Lack of communication, he says, is the main reason why relationships break down. Financial advisers need to put everything down in writing, rather than rely on informal discussions. "It's like your math teacher used to say: Show your work," he told a financial planning conference in Ottawa last month.

This means asking clients to sign and approve every significant fact, assumption, recommendation and instruction in a financial plan. "If you do not review the parts, then you cannot be sure that the parts, when assembled into a whole plan, fairly represent their intentions."

After hearing Geller's speech to the Institute of Advanced Financial Planners, I asked him to expand on his comments. How can financial advisers head off lawsuits? And how can clients avoid having to sue in the first place?

Here's what he tells advisers who give comprehensive financial planning advice:
• Document all assumptions.
• Provide clear warnings of risk.
• Inform clients of what types of factors can trigger the need to review a financial plan.
• Don't give up once the plan is implemented.

Here's what he tells clients who want comprehensive financial planning advice:
• Look for credentials. Hire someone with a designation, such as certified financial planner or registered financial planner, that ensures adherence to a set of standards.
• Insist on an engagement letter. This is a written contract that says what services are provided and what are not included.
• Interview several people to see how they communicate with you. Bedside manners are as important for financial advisers as they are for doctors...

Geller's final advice to clients: Don't rely on the fairness of large financial institutions or regulatory organizations if you run into problems. He doesn't have much faith in regulators even though his father, Jack Geller, was a former OSC vice-chair. "When big corporations are sued, they say they don't adhere to first-class standards but to the lowest common denominator imposed by regulation," he says. "If the consumer knew the defenses put forward by financial institutions, they'd feel they were being taken advantage of."

Geller questions the wide gap between what banks and brokerages promise in their advertising — Grade A service — and what they say when challenged in court. "If they're not responsible for providing more than a minimal level of service, why do regulators allow them to run this advertising?" he asks. "I'm very concerned about what the industry is trying to do."