Why should financial advisors document, document, document?

By John L. Olsen, CLU, ChFC, AEP

Olsen & Marrion, LLC

​If a financial advisor is unwilling to document his/her credentials, that's a tip-off to clients that they probably shouldn't work with that advisor. But documentation goes further. In my opinion, if a financial advisor does not send a letter after every encounter (meaning every face-to-face meeting and every telephone conversation in which financial advice played a part), a letter that details what the advisor said, what he/she heard the client say, and what recommendations, specifically, he or she is making and why, then the client should be looking for another advisor.

There's simply no excuse for an advisor's failure to do this. Everyone wins when it's done. If, after receiving the letter, the client feels that his advisor misunderstood something he said, then he is presented with the opportunity to correct that misunderstanding. No competent advisor would fail to welcome such correction. Indeed, most advisors insist upon that.

I recommend to advisors that they not only send such letters, but send two copies, both of which they've signed with a request that the recipient sign both copies and return one to the client in the self-addressed stamped envelope provided. What's the purpose of all this? It's not just "CYA" for the advisor. It's simple communication — an attempt to ensure that everyone involved has the same understanding of what was said and by whom, and what was recommended and why.

Indeed, I prefer to record interviews (with the client's permission, of course) and give the client a copy of the recording. Why? So that she can later review precisely what was said. And so that I can do the same. No one's memory is perfect (certainly, not mine). A clear, accurate record is the best tool I know for refreshing one's memory.

In my personal view, the job of a financial advisor is to help the client to make informed decisions. This requires the advisor to be a competent teacher — to make clear techniques, strategies and financial tools that are often complex and potentially confusing. And to present alternatives, without which no sound decision is possible. Proposing one product or strategy without showing alternatives is not "advising. It's peddling.