Why You Should Know Your Financial Advisor’s Documentation Skills

When it comes to evaluating investment advisors, their record-keeping skills should play a major factor.

A new study from the North American Securities Administrators Association (NASAA) finds that many U.S.-registered investment advisors are falling short on basic record-keeping rules. What’s more, the study found record-keeping issues made up the top violations.

The study, which reviewed 1,130 advisors, managing between $30 million and $100 million in assets, showed some advisors do not even have written contracts with their clients, nor do they describe their formulas for the fees they charge.

Investment advisors are likely falling short on documentation because they are not audited on a regular basis, says Linda Leitz, chairwoman of the National Association of Personal Finance Advisors. “It’s easy to innocently fall short, and that is what is good about regular, frequent and consistent audits,”

Finding the right investment advisor can be challenging, but Leitz says before even talking with potential professionals, consumers need to identify their financial goals.

“One of the things that is really helpful is to come up with an investment policy statement that says ‘these are my goals,’ and how comfortable you are with them,” Leitz says. “The SEC has straightforward guidelines in terms of record keeping in every state on how trades are documented and kept.”

Leitz says all clients should ask their advisors for copies of trades for their own records so they can track performance and identify any areas that might need to be re-allocated.

It’s also important to ask advisors if they are held through a fiduciary standard, meaning they are responsible for putting their clients’ best interests first.

Consumers should take notes at every meeting to make sure the plan agreed upon is being followed and to document a professional’s advice. This will help protect them in the case of a dispute in the future, Leitz says.

“If a consumer can show handwritten notes and the advisor can’t come back and show what they did—there is an issue,” she says. “You don’t know if you are on track, or if the advisor has done what you have agreed to do. The documentation can be very complex, and a multi-page plan, but it really matters for consumers.”