Documentation—the practice of summarizing every key client conversation and decision in writing—is a crucial part of your day. It not only produces a paper (or electronic) trail of your regulatory compliance, it helps to support your legal defense in case a cl­ient sues you.  For these reasons, compliance officers and attorneys are big on documentation. In fact, they would love for you to spend your entire day on it, despite the inevitable revenue plunge.

However, insurance and financial advisors may not be as positive about documentation as their compliance and legal colleagues are. That’s because they’re the ones who have to do it. What’s more, each minute spent documenting imposes an opportunity cost in terms of time lost to prospecting, sales meetings, business management, and the like. As regulations become more involved, the documentation requirements soar in tandem, taking up more time, imposing more costs, and generally making the life of a financial professional more tedious.

Are you spending more time on documentation these days? Do you find yourself dreading every client phone call because now you have to record its key outcomes? If so, you’ll be happy to know you’re not alone.  According to a new survey from Nuance, maker of Dragon speech recognition software, 89 percent of financial advisors say heavy documentation limits the time they can spend with clients; 37 percent spend three hours or more each day writing financial plans, regulatory filings, or other documentation; and 48 percent say they have to generate at least one full page of notes after every client interaction. Is it any wonder documenting may not be your favorite activity?

Fortunately, taking and storing notes isn’t as hard as it used to be. Today, you have customer relationship management (CRM) applications to help with the generation, filing, and retrieval of meeting notes. In fact, according to Nuance, more than two-thirds of the financial advisors it surveyed use CRM software. However, the majority are less than satisfied with their CRM application, saying it’s frustrating and difficult to use.

In response, financial-services firms give their advisors a host of additional documentation tools, including standardized templates, disclosure forms, and the like. They also deploy smartphones and mobile apps to help advisors and agents complete their documentation tasks while on the road. This is important because making notes right after a meeting instead of when you return to the office minimizes forgetting.

Still, according to Nuance, 78 percent of advisors surveyed said they would be open to using additional tools such as speech recognition to make their documentation lives easier.

So what’s the bottom line? That documentation is a pain, but it’s also crucial. Which means you should make full use of all the tools at your disposal—your company’s CRM software, mobile note-taking apps, and speech recognition technology (if available)— to take the best notes possible. As a refresher, here are some of the items you should record:

  • The “Who”: customer name and title; personnel tasked with action.
  • The “What”: the specific prospect/client inquiry/decision that prompted the action, including accountabilities.
  • The “Why”: the reason(s) the prospect/client initiated the request.
  • The “When”: the time at which the request was made and completed.
  • The Need: the specific issues your fact-finding meeting uncovered; the needs the client specifically expressed.
  • The Recommendation: the recommendations your research and analysis produced?
  • The Decisions: whether the client decided to buy or not. If the latter, why.
  • The Questions: the questions/concerns discussed and the outcomes agreed to.
  • The e-mail/fax communications: the electronic or faxed communications that took place between you and the client.
  • The “moments of truth” in the client relationship: differences of opinion between advisor and client or between client and family members; new issues arising during annual update meetings; coverage change requests; carrier underwriting decisions, especially if negative.
  • The policy illustrations: the projections used to illustrate policy performance, including the client’s signature.
  • The unusual: atypical client situations or requests, including anything that seems weird or that suggests potential future problems.
  • The arguments or complaints: any negative interactions with a prospect or client, especially those relating to a breached duty (perceived or real).

Finally, if documenting all of the above is stressing you out, remember this: if you’re ever sued, your E&O insurance defense will only be as strong as the thoroughness of your notes. Good luck!


For information on affordable E&O insurance for low-risk insurance agents, financial advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

If you’re an investment advisor, one of the quickest ways to run afoul of the Securities and Exchange Commission (SEC) is to make statements in your Form ADV that you fail to execute. When this happens in connection with investment-advisory fees, the SEC will be especially unhappy with you. To motivate advisors to not play games with their fees, the SEC recently published a Risk Alert detailing the most frequent advisory fee and expense compliance issues they encounter.

Based on a review of 1,500 examinations and resulting deficiency letters over the last two years, the SEC’s Office of Compliance Inspections and Examinations identified the most common compliance issues that arise out of sloppy or deceptive advisor billing of consumer fees and expenses. They include:

  • Inflating the value of an account in order to generate higher fees. This results from practices such as using a different valuation metric than what was defined in the advisory agreement; calculating the account value at the end of a billing cycle rather than using the average daily balance; or including asset types such as cash equivalents, alternative investments, or variable annuities in the value calculation in violation of the agreement.
  • Manipulating the timing and frequency of fee billing in order to benefit the firm. For example, advisors may bill advisory fees on a monthly basis instead of the required quarterly basis or bill new clients in advance for an entire cycle rather than making a pro-rata adjustment.
  • Applying an incorrect fee rate. This tactic may include applying a higher rate to the calculated account value than is stated in the advisory agreement or Form ADV or charging a non-qualified client performance fees based on a share of capital gains in violation of the Advisors Act.
  • Omitting rebates and applying discounts incorrectly. Here, OCIE staff said advisors sometimes fail to aggregate account values as promised for multiple family members in the same household or never reduce the fee rate when the account value reaches an agreed-upon benchmark. They also may charge clients brokerage fees when they are in the advisor’s wrap fee program.
  • Making disclosures in their Form ADVs that conflicted with actual practices. For instance, advisors sometimes charge a fee rate higher than the maximum promised in their advisory agreements. Or they may bill for expenses unmentioned in their agreements (example: billing for third-party execution and clearing services that exceed actual fees charged by an outside clearing broker).
  • Misallocating expenses to clients rather than to advisors. This occurs in connection with distribution and marketing expenses, regulatory filing fees, and travel expenses that advisors charge to clients rather than properly allocating to themselves.

What should you do with this information? The OCIE provides three pieces of advice:

  • Assess one’s advisory fee and expense practices (and disclosures) to make sure they comply with the Advisor’s Act and related rules.
  • Based on this review, change or enhance your practices and procedures to assure compliance.
  • Reimburse clients for the overbilled amount of advisory fees and expenses.

This may not be what you want to hear, but it’s good advice. Full compliance with the law and if not, mitigation of any problems, including refunds paid to consumers, will always be the smartest strategy. Questions? Contact your compliance officer or attorney as soon as possible so you can avoid problems in case the SEC comes calling.


To read more on ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

Warn Your Clients Now: FINRA Does NOT Guarantee Investment Opportunities

The ingenuity of investment scammers has no limits. Now they are invoking the names and logos of regulatory agencies in order to entice their victims—your clients—to part with their hard-earned cash.  To help them stay safe, caution them to watch for solicitations that use a regulatory tie-in to promote an investment’s safety.

In a recent case, fraudsters used FINRA’s name and logo in correspondence, including a phony signature from FINRA’s top executive—to create the false impression it guaranteed the performance of what was actually an advance-fee scam.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” says Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

According to FINRA, advance-fee scams typically involve criminals enticing consumers into sending in funds to pay for administrative or regulatory charges relating to a stock share buyback, which is either worthless or under-performing. Once investors send their money in, they never see it again or receive any returns from the stock buyback.

One way for your clients to stay safe from such schemes is to carefully examine solicitations for telltale signs of fraud. These include the use of quasi-legal language, repeated use of the word “guarantee,” and failing to correctly identify the regulator or its executives.

In a FINRA Investor Alert on regulator scams, the agency pointed to a recent attempt to defraud an investor. The scammer emailed the person a document supposedly from the FINRA CEO in an effort to build trust. Close inspection of the letter revealed improper use of the FINRA logo, incorrect executive titles, repeated use of the word “guarantee” (something FINRA would never do), and reference to the Financial Securities Rule-Making Board (FSRB), a fake agency.

In another fraud, scammers sent email pitches that purported to come from the office of FINRA President and CEO Robert Cook. They portrayed FINRA as a “recognized financial manager of the IMF” (false) and informed recipients that it has granted the release and payment of outstanding inheritance funds. The catch? The investors needed to fly to another country. But before they could, they needed to send in more personal information and a copy of their passports. Those who did would be at high risk of having their identity stolen, FINRA said.

How to help your clients avoid advance-fee, phishing, or other types of investment frauds? Encourage them to view every solicitation skeptically, watching for typos and other scam tipoffs. And they should be wary of any offer that touts guarantees or otherwise sounds too good to be true. If they’re not sure the offer is legitimate, encourage them to run it by you. Or they can use FINRA’s Scam Meter here.

To help your clients learn more about investment scams, send them to FINRA’s “Avoiding Investment Scams” page here.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

Scheming Brothers, Hedge Fund Phoney, Accelerated Benefit Scammer

 A former Morgan Stanley financial advisor was sentenced to two years in federal prison and three years of supervised release for defrauding a widowed client. The U.S. Attorney’s Office for the District of Oregon said that Gregory Walsh, a former Morgan Stanley Vice President, convinced the client to invest $1.1 million in California property. However, rather than make a legitimate investment, he conspired with his brother, Geoffrey Walsh, a bank executive, to put the client’s money into a business Geoffrey owned. At no point did Gregory provide his client with appropriate documentation. Geoffrey then sold off some of the property without the client’s permission in order to pay for personal expenses. The two conspired to do two similar deals that defrauded the client out of an additional $4 million. Geoffrey Walsh pleaded guilty on two counts and was sentenced to 30 months in federal prison and three years of supervised release.

A New York man has been charged with defrauding investors out of $5.3 million by claiming he was a successful hedge fund manager linked to the former Genovese drug store chain. According to prosecutors, Nicholas Genovese defrauded investors in his phony hedge fund for at least three years. According to securities regulators, he lied about managing $4 billion in assets for the Genovese family. He also falsely claimed he produced annual returns of between 30 percent to 40 percent, rather than disclose the fact that he actually lost money. During the fraud period, Genovese lost $8 million in client money. This did not stop him from spending $263,000 of their money on his lavish lifestyle, including being chauffeured around in a Bentley.   

A Virginia life insurance agent has been convicted on charges of defrauding a client in the amount of $182,000. According to authorities, Semyya Cunningham, 40, sold a life insurance policy to a friend. The contract included an accelerated benefit rider which allowed the insured to file for benefits in the event of a terminal illness. Several months after purchasing the policy, the insured was, in fact, diagnosed with a terminal illness. However, instead of helping her friend collect the benefits for which she now qualified, the agent altered the contact information for the policy to her own name so she could apply for benefits herself. After receiving the money, she then transferred it to several different accounts in order to prevent the insurer from reversing the transaction. Cunningham faces maximum jail time of 20 years. She will be sentenced in May 2018.

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.