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(June 5, 2003) Though he looked like an average delegate, Harold Geller quickly identified himself as a financial planner’s worst nightmare. The litigation lawyer from Ottawa-based Milton, Geller LLP, whose practice regularly involves disputes related to insurance and financial advisors, told a group of delegates at the CIFPs inaugural conference in Huntsville, Ontario, why they should fear him.
“I work with the law, and I work to get the best results for my clients. If my client doesn’t win, I don’t get paid,” said Geller. “So far on every case where I’ve been a plaintiff’s counsel, I’ve been paid.”
In his presentation titled “How to avoid E&O claims,” Geller explained some of the mistakes planners make with clients that could land them in court. According to Geller, it’s usually catastrophic events that bring everyone’s attention to the files. Once the files are opened, the biggest error identified is the guarantees that financial planners make to clients.
“Any sentence containing the words, ‘This will happen,’ is a guarantee,” warned Geller, “and I will come after you.”
Another big mistake planners make is misunderstanding a client’s sophistication. “Some clients may seem sophisticated, but do they understand the complexity of your industry?” Geller asked. “Part of the reason they have met with you is that you’ve identified yourself as the expert.”
Sophistication of the client is not a waiver to ignore your fiduciary responsibility, he explained further. Instead, financial planners have two fundamental responsibilities. First, you must advise your clients of appropriate investments. Second, you must dissuade them from inappropriate investments.
Geller believes clients want to place confidence and trust in their financial advisor. “They fear mistakes and uncertainty,” Geller said. “Even clients defined as having a high tolerance for risk fear uncertainty.” There is a disconnect between clients looking for certainty and the fact that there is none out there. As a result, advisors need to educate clients of the benefits, the risks and the unknowns of financial planning.
But it doesn’t end there, according to Geller. One in three claims made by financial planners for errors and omissions insurance are denied on first application, a frightening and costly situation. On top of that, “The growth area for suing is financial advisors — you are easy marks,” Geller warns.
Because in court the lawyer for the client will try to make you out to be the bad guy, Geller stressed that keeping accurate notes of client communication has never been more important. “Even two [honest] people will have different versions of the past,” explained Geller, adding that without documentation, the client is much more likely to be believed.
Geller advised not only documenting what you say to clients, but also to use regular stock phrases in your notes. He used his own legal practice as an example, where he has a call log where he writes down every phone call. New prospective clients calling in are always told the same thing.
Geller doesn’t provide legal advice on the spot because he doesn’t know all the facts of the situation. Before he does offer any legal advice, a prospective client must hire him and provide a retainer fee. Then, in his call log, he will write in “retainer.” Should someone who didn’t hire him ever decide to sue, he can return to his call log. When a judge asks to identify what he meant by the note “retainer,” Geller can explain that he told the client no advice can be provided until the retainer is paid. “How do I know I said this?” Geller asked. “Because every time I write ‘retainer’ in my book, that’s what it means. A judge will believe that.” Geller also notes how long each conversation is and any other pertinent information.
Geller suggested advisors find similar ways to set up structure to their practices. Call logs and similar tracking methods should have numbered pages to show that no pages were torn out of the log. “KYC [forms] are the minimum requirement,” Geller added. “They are not protection. You must proactively advise clients.”
Finally, Geller noted that planners must define the parameters of their business. “Are you qualified to provide tax planning?” Geller asked the group. “If not, make sure you clearly explain in writing to the client why you have been retained and your boundaries. Tell them any tax planning advice you offer should be checked with a tax specialist.”
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Jennifer McLaughlin, Advisor’s Edge, jmclaughlin@rmpublishing.com.
(06/05/03)