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Document your ethical practices
Document your ethical practices

Mar 01 2024 / Round the Table Magazine

Document your ethical practices

Archiving your notes and recommendations is an advisor best practice.

Topics Covered

Even when we do everything right, the actions of others sometimes can still result in the loss of time, income and reputation. There is always that potential of having to click “yes” on your MDRT membership application just because you were the subject of a client complaint. But in addition to keeping the client’s needs at the forefront, consider how backing up your transactions and client discussions with detailed notes can alleviate the stress of having to check that complaint box come application time if that circumstance should happen to you.

Consider this example: After hosting a retirement planning seminar, you acquired a new client who recently sold one of their commercial rental units. They sought your advice on how to replace their lost rental income to help fund their retirement. After going through your discovery and planning process and considering several options to assess the client’s risk appetite, you recommend an investment policy designed to generate income for the medium to long term along with taking out a life insurance protection plan.

A few years later, the economy takes a downturn, and your recommended plan isn’t generating the client’s expected retirement income. You advise the client to preserve capital by reducing their planned regular withdrawals, which they do.

However, the depressed real estate market also creates an opportunity for your client to buy a bargain property. Despite the original intention to enter retirement and not acquire any more rental units, the client now wants to surrender the insurance policy to use the cash value to purchase the property in full. You suggest using a mortgage instead, which would still enable the client to complete the commercial deal without unravelling the existing retirement plan. But the client sees the rental income as being more predictable than market returns and insists on fully exiting the coverage. This decision comes with a substantial loss of capital as the policy was set up with a long-term view to weather the ups and downs of market volatility and capital appreciation.

Despite the initial desire to simplify retirement, your client retreats to what they know and, going against your advice, directs you to surrender their policy when cash values are depressed from the slumping economy. You dutifully update your client’s record with the history of events, your review of your original planning and recommendations, and the advice and discussions leading up to the full surrender of the policy.

You did everything right

Several years later, you receive a complaint from a claims company representing your client. Even though you thought the matter was resolved in your client’s mind, this claims company, which specializes in no-win no-fee cases, is trying to upend your world.

You immediately report the incident to your insurance company and professional liability provider. Then what follows are months where you might find yourself chasing reports you had to file but lost track of. With the back and forth of answering questions while dealing with the complaint, you not only lose productivity but endure many a sleepless night wondering how this will play out. You’re worried about the potential of a financial loss and the damage to your reputation. Will this complaint be a matter of public record? Will you have to declare it to your other carriers? What about the impact on your various associations and memberships?

You’re losing time dealing with the claim. You’re losing money from paying your lawyer and from lost productivity. Your reputation with your other clients and prospects could be at risk.

But organized and detailed notes about your planning and client-centered advice can save the day. After several long months of back and forth between your lawyer and the claims company, the plaintiff drops the case as it sees the odds of obtaining a settlement are low. They’ve decided to move on and pester another advisor who isn’t as diligent. Your reputation is intact; you’re more determined than ever to ensure it stays that way; and your application to MDRT is reviewed and quickly approved, with no findings of fault.

Steps that will help us in the event of an investigation:

  1. In all advisory settings, always think of your client’s best interests. Be able to demonstrate that a needs-based approach was taken where the original recommendations matched with your client’s stated long-term goals and were not influenced by other (self-serving) factors.
  2. Have a habit of keeping detailed notes and emails about discussions and archive them. Practice good admin hygiene by sending summaries of your meeting notes to your client for acknowledgement. Maintain an archive of all client discussions (including those who have stopped engaging your services) for a period of not less than five years.
  3. Be proactive with your carriers and associations when a complaint or similar situation arises. Honesty is the best policy. When you cooperate and bring matters to their attention, complete with supporting information, you’ll shorten the time — and stress — to a resolution.

MDRT Code of Ethics

MDRT members have a commitment to operate in an ethical and upstanding manner for the benefit of the public and the insurance and financial services profession. The Million Dollar Round Table’s Code of Ethics sets the standards for attaining this goal; therefore, members shall:

  1. Always place the best interests of their clients above their own direct and indirect interests.
  2. Maintain the highest standards of professional competence by seeking to maintain and improve professional knowledge, skills and competence.
  3. Hold in strictest confidence and consider as privileged all business and personal information pertaining to their clients’ affairs.
  4. Make full and adequate disclosure of all facts necessary to enable clients to make informed decisions.
  5. Maintain personal conduct which will reflect favorably on the insurance and financial services profession and the Million Dollar Round Table.
  6. Determine that any replacement of an insurance or financial product must be beneficial for the client.
  7. Abide by and conform to all provisions of the laws and regulations in the jurisdictions in which they do business.