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Our RDR adviser's 'helpful' meeting with a compliance consultant...

Fresh from his first day under the RDR, Steve Buttercase takes another sideways look at life in the new world. This time, client reports and investment suitability are on the agenda...

With the pressure of the retail distribution review’s (RDR) new compliance demands taking its toll on my time, I decided to invest a day meeting a compliance consultant to help me tackle the challenge of client reports.

Consultant: ‘Steve, welcome to our workshop on client reports. I suggest we start from the beginning: do you know the golden rule of client reports?’

SB: ‘I am not sure.’

Consultant: ‘It’s that the report is a record of events: it is a diary of a relationship, a journal of a journey. The golden rule is: if it isn’t written down, then it didn’t happen!’

SB: ‘You mean it’s hard to prove?’

Consultant: ‘I mean it did not happen. We depend on evidence, Steve. Evidence. Everything vital is documented, everything necessary is clearly explained. If it’s not written down, then it didn’t happen.’

SB: ‘Well, yes, but that doesn’t mean…’

Consultant: ‘Think about history, Steve. The Battle of Hastings, the Battle of Trafalgar – what would we know about these if they hadn’t been written down?’

SB: ‘Nothing?’

Consultant: ‘Exactly. Writing things down can also help us determine what didn’t happen. Use the client report to document anything that could be potentially useful for denying something later on. Because of the RDR, we are not expected to just give best advice but also to predict what best advice will be in the future. In the future we will know what constituted bad advice and, applied retrospectively, we will need to produce evidence that we never gave such advice. Clear?’

SB: ‘Crystal. So the report is not just about giving best advice now, but protecting me against what might be considered bad advice in the future?’

Consultant: ‘Precisely. And for that reason, it needs to be as obscure and long-winded as possible.’

SB: ‘What? Why? Won’t the client inquire what I have written if it’s too confusing?’

Consultant: ‘We have thought of that: make sure the front of the report is full of stuff they already know. By the time they get to the confusingly written part, they will have drifted off.’

SB: ‘What would we tell them that they already know?’

Consultant: ‘Simple stuff: tell them whether they are married, whether they have children or a mortgage, how much they earn, how they pay tax and what they want to do in life. They will have told you all of that during the fact-find and now you just describe it back to them.

The regulator loves this sort of thing. It’s a bit like showing your wife or husband that you have been listening by repeating stuff back to them. The client is quietly lulled into a relaxed state, gradually losing interest.

However, before the really confusing stuff, it’s wise to use the secret weapon: the results from the risk assessment questionnaire. They always stop reading at that point.’

SB: ‘Sorry, what were you saying?’

Consultant: ‘Exactly! Now, with help from paraplanners and boilerplate reports, diagnostic analyses, stratified sampling, stochastic modelling and bespoke investment route maps, we eventually compile a thick document guaranteed to bemuse the client and protect us from the regulator.’

SB: ‘So that will protect me from retrospective complaints?’

Consultant: ‘Not quite. Once we have made the report as confusing as possible, we need the client to sign a piece of paper saying they have understood and agreed to it.’

Consultant: ‘No, but they won’t want to admit that. They will be so impressed by the way you rattle out figures and projections, risk warnings and disclaimers that their heads will be spinning. They will sign so you would think they have understood.’

SB: ‘I don’t think this is ethical.’

SB: ‘Sorry, what?’

Consultant: ‘It doesn’t matter what the report says or whether it’s signed or not.’

SB: ‘Why not?’

Consultant: ‘Because all complaints that are pursued eventually end up with the Financial Ombudsman Service, which will make a judgment on whether the client actually understood what was explained to him, whether it’s in the report or not.’

SB: ‘So I need to make sure the client understands after all?’

Consultant: ‘Yes, but don’t expect the report to help you. Now, would you mind shredding your notes on your way out? It’s evidence, you see…’

Steve Buttercase is a financial planner at Sense Financial Solutions.