Creating a Firm Culture That Puts Your Clients First

When you and your clients make the mutual decision to engage in a relationship, it generally starts with a shared vision and some level of trust. From there, in order to continually build the relationship, you must go about creating a firm culture that puts your clients first. But what exactly does that entail?

Here, we'll focus on three key areas of fostering a client-focused culture: recognizing and abiding by regulatory responsibilities, encouraging transparency, and maintaining ongoing communication, including proactively planning for significant life events.

Of course, with any relationship comes responsibility. But in the case of your securities client relationships, you have an actual regulatory obligation to ensure that you know your customers and make suitable recommendations. By knowing which regulations apply to you, you can help create a culture of responsibility. Here are just some of the regulations to keep top of mind:

FINRA Rule 2090 (Know Your Customer). This rule requires registered representatives to “know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”

USA PATRIOT Act. In an effort to fight terrorism and money laundering, Section 326 of this act requires financial institutions to establish a customer identification program to verify the identity of any person seeking to establish an account.

FINRA Rule 2111 (Suitability). Under this rule, registered representatives need a reasonable basis for believing that a recommended transaction or investment strategy—whether to buy, sell, or hold—is suitable for the customer. This must be based on an independent evaluation of the personal facts and circumstances that your client has disclosed.

Investment Advisers Act of 1940. If you’re an Investment Adviser Representative, this act, along with various state regulations and common law, imposes a fiduciary duty on you. Among other things, you are responsible for the following: 

• Act in the best interest of your clients at all times.
• Provide individualized advice that’s unique to your client based on his or her financial situation, age, income, liquid net worth, risk tolerance, time horizon, investment objectives, and investment restrictions or instructions.
• Clearly document your suitability determinations, including a full disclosure of relevant facts and potential conflicts of interest.
• Meet or speak with each managed client at least annually to ensure that the allocation you’ve suggested still coincides with the client’s financial goals and objectives.

As the representative and/or advisor, you must independently demonstrate why your clients’ investment selections or strategies are reasonable and appropriate with respect to their specific financial situation and objectives. Further, an independent third-party reviewer must be able to reasonably determine why a specific recommendation was suitable for a client based on your documentation. In short, you must foster a culture of transparency.

Document, document, document. Based on disciplinary actions in the industry and through our own experience during regulatory exams, we cannot stress enough the importance of maintaining detailed notes and documentation. Maintain client notes via the client's file or your CRM, and be sure to include detailed observations that demonstrate the reason for your action or inaction related to client accounts. To help determine whether your files have sufficient detail, consider the following: 

• Were product/strategy risks and benefits clearly illustrated?
• Were the product structure, features, and associated fees (and any other material information) clearly disclosed?
• Were any applicable conflicts of interest clearly disclosed?
• Were all applicable disclosure documents delivered (e.g., prospectus, offering memorandum)?
• Do file notes account for additional conversations warranted based on the client’s age, investment experience, or risk tolerance?
• In cases where a client has excess concentrations in a particular product or strategy, do your notes clearly articulate why?
• Are unique or short-term strategies supported (e.g., buy-and-hold strategy)?
• Were alternative or comparable product options or strategies presented?
• Were account restrictions discussed or imposed?
• Do meeting agendas, notes, or follow-up letters present a clear picture of the relationship (e.g., timeline of meetings, reason for actions taken, behavioral patterns, preferred method of contact, client’s lifestyle changes)?
• Were any actions that conflicted with the stated account objectives clearly explained?
• Have you documented any of your concerns or actions taken for unresponsive clients, inactive fee-based accounts, or clients not following your guidance?

Aside from documenting the standard course of events during your client relationship, there’s also a high probability that an impactful life event (e.g., divorce, death, unanticipated debt, loss of employment) could considerably alter the client’s immediate or future financial situation. For this reason, it’s important to maintain a culture of communication. Here, it may be helpful to ask yourself the following: 

• Have you set the expectation with clients of when and how to notify you of life events, and have you defined such events? In addition, have you set expectations for the actions you will take if you’re indirectly notified of a life event (e.g., you hear about it through a friend or social media)?
• Have your clients, regardless of current age or health, provided you with trusted contacts for your records? If so, are their roles defined (e.g., will you be limited to sharing information with them, or are they specifically appointed with authorization to act on the account)?
• In the case of a divorce or separation, could one party present a perceived conflict of interest based on your relationship? Have you set expectations regarding how you would handle conflicting or new transaction requests for jointly held accounts?

Moreover, remain mindful of red flags related to changes in client transactional or behavioral patterns that may signal issues related to elder financial abuse, diminished capacity, or falling victim to a cyber scam. In these cases, your notes, supporting documentation, and communication can save your client from a harmful situation, including the loss of life savings.

In any client relationship, you serve not only as your clients’ financial professional but as their advocate, protector, and friend. You are the conduit through which they fulfill their financial goals and dreams, so make the extra effort to ensure that your client files and records reflect that to independent reviewers, regulators, and clients’ financial heirs. By doing so, your firm will embody a culture of responsibility, transparency, and communication that puts your clients first.

How do you create a firm culture that puts your clients first? Do you use a CRM to maintain client notes? Please share your thoughts with us below!