Keeping records can protect you

“Advisors need to think about their client files [as] not just as a history of the relationship,” says Robbert McIntosh, director with Advocis Broker Services Inc. in Toronto. “[Advisors] need to understand that their client file could one day become the evidentiary documents that will form their defence against a claim.”

As advisors face increasingly rigorous regulatory requirements, record-keeping has become even more important as a method of demonstrating your compliance with regulations. In many cases, however, there are no specific rules on which documents you must keep or for how long.

Even in the absence of specific rules, it’s a good idea to keep copies of as many documents and records as possible, says Roberta Tasson, vice president, corporate risk, with the Magnes Group Inc., an insurance brokerage based in Oakville, Ont. Client files, Tasson says, form the basis of an advisor’s defence in the event of litigation. Without documents, it’s your client’s word against yours; such cases often end favourably for the client.

“Without evidence showing what happened, it will be difficult for a court of law to rule in favour of the advisor,” Tasson says, “even if no negligence took place.”

In addition to copies of the original insurance application and policy documents, Tasson says, each client file should include detailed notes on any meetings and conversations that take place between you and the client.

“We often see that the client’s recollection of what took place is vastly different from that of the advisor,” Tasson says. “Taking notes and having a detailed client file is critical, as these documents will be a valuable tool in the event of litigation.”

It’s also a good idea to include product brochures or detailed notes on how the product or policy was described to your client, McIntosh says, as well as notes on the client’s understanding of the product.

“As the advisor, you need to make sure that [clients] completely understand what they’re purchasing,” McIntosh says, “and you need to have in your records that they understood the purchase [and] that they understood the potential benefits and the potential risks of the product or service.”

Furthermore, McIntosh adds, in case questions of suitability arise down the road, you should include details in the client file about alternative products that were discussed or recommended. In situations in which a client declines an insurance product that you recommend, have that client sign a “decline letter” to include in the file to demonstrate that the client understood the options prior to making a decision.

Although many advisors assume that the insurance company keeps copies of policy contracts and other documents on file, that is not always the case, according to Harold Geller, associate with McBride Bond Christian LLP in Ottawa. Geller has seen several cases in which the insurer has lost the policy contract in question, then deflected responsibility onto the advisor who sold the policy. In cases in which there’s a discrepancy pertaining to a specific clause in a contract and neither party has a copy, Geller says, the insurer often accuses the advisor of giving the client false information about the policy.

“The client only has to point their finger and say, ‘You told me this,’ and the agent can’t prove otherwise,” Geller says. “And the insurer will routinely hang the agent out to dry.”

When deciding how long to retain documents and records, it is commonly assumed that six or seven years is sufficient, which meets Canada Revenue Agency’s guideline for the retention of documents for tax purposes. Given the long-term nature of life insurance products, however, you should be keeping supporting documents much longer. Says Geller: “When people buy life insurance, they’re looking for a longer time frame.”

Complaints and discrepancies often do not arise until the client attempts to make a claim, which can be decades after the policy was sold.

Geller recommends keeping files indefinitely, as long as there are no restrictions on the length of time the document can be retained under Canada’s privacy legislation. And given the option of keeping files in an electronic format, physical space need not be an issue.

This is the first part in a two-part series on record-keeping. Next: Keeping digital records.

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