James Moon, an advisor in Toronto who was disciplined by regulators five years ago for inappropriate dealings with clients, wants to help colleagues avoid similar experiences.

Moon has set out to redefine the typical analysis and procedures that he believes should be put in place when advisors are dealing with client expectations.

It’s been an uphill battle for Moon, 42, who has fought to stay in financial services ever since a probe by the Investment Dealers Association of Canada (the predecessor of the Investment Industry Regulatory Organization of Canada) led to a 2003 settlement agreement and a penalty of $40,000 in fines and costs for actions taken while Moon was an advisor with TD Evergreen Investment Services Inc. (now part of TD Waterhouse Canada Inc.).

A portfolio loss and client complaint led the IDA to probe Moon’s work and that of his then-partner Benjamin Gelfand. As part of the settlement, Moon admitted to having used a trading strategy that was not appropriate for the client; to having completed a new application form for a client that did not reflect the client’s true investment objectives or risk tolerances; and to having executed 11 trades in a client account using timing discretion.

Moon, who now heads up his own firm, All Group Financial Services, has learned from his mistakes and doesn’t want other advisors to slip up the way he did. “I really look at things differently,” he says. “We have taken a situation in which we made mistakes and are trying to make it better for the whole industry.”

Moon is urging advisors to protect themselves with several strategies, including making financial plans for clients, using a different approach to assessing a client’s risk tolerance and better note-taking.

When it comes to processing new account applications, Moon requires clients to fill out separate risk questionnaires for their RRSP account and their trading account rather than having them complete a single risk questionnaire for all assets. This helps make a distinction between the client’s more conservative approach for the RRSP vs a more risk-tolerant scenario for the trading account.

Moon says it’s amazing how differently clients will approach risk in funds set aside for retirement vs their non-registered accounts.

Moon also doesn’t equate income-producing investments with conservative investing. He notes, for example, that an income trust produces income but is much riskier than a government treasury bill.

Moon also gives each asset a specific rank on a scale of one to four, from ultra-conservative to aggressive. He dismisses terms such as high-, medium- and low-risk and short-, medium- and long-term investment objectives as too vague.

Moon also takes a lot of care with note-taking and recording conversations with clients. Notes taken on loose sheets of paper can easily be lost, he says, and there’s no proof that the notes were actually written at the time the advisor says they were.

Instead, Moon recommends taking notes on a computer linked with a client’s contact information. He has adapted Microsoft Outlook’s contact management database using voice over Internet protocol software so that all phone calls are logged and time-stamped; notes taken during the call are also time-stamped and stored along with the phone logs.

Moon says he was inspired to adopt such a system after it cost him $80,000 to pull 10 years’ worth of phone records related to his case. The phone record search took a lot of time, which irritated investigators, he says. In contrast, his revamped approach costs next to nothing and delivers immediate results.

He points out that advisors need to demand that their financial services institutions give them the appropriate tools to assess clients properly and minimize ambiguity.

As well, Moon says, the rising cost of doing business is resulting in advisors seeing their commissions reduced, which can lead to some advisors selling products they shouldn’t. And when that happens, they can get themselves and their clients in trouble over investments that neither understands fully. “It becomes a death spiral,” he says.

Kim Maggiacomo, chairwoman of the Association of Canadian Compliance Professionals in Toronto, says the question of whether the standard know-your-client form needs improvement has been a topic of debate for many years. Those concerns were one impetus behind the Ontario Securities Commission’s fair-dealing model, which has evolved into the client relationship model.

@page_break@There are good and bad elements of the CRM, Maggiacomo says, but she agrees with the Investment Industry Association of Canada that the KYC document has become too unwieldy, lengthy, impractical and clogged with numerous disclosures that clients won’t read.

Still, she believes the document is fundamentally sound: “Overall, from a nuts-and-bolts compliance perspective, the KYC does a good job for its purpose.” IE