Gathering personal information and asking probing, exploratory questions are fundamental to being a financial adviser.
Indeed, in most professions, personal data is essential for understanding a client/patient’s circumstances, needs and goals.
But if that information is not recorded, stored and, ultimately, destroyed properly, businesses and their customers are exposed to significant risk.
Recent high profile data breaches at Optus and Medibank are a reminder of the legal and ethical obligations that businesses have to their customers. There are serious financial, regulatory and reputational consequences for messing up.
Yet, many advice businesses aren’t doing enough (or anything) to protect themselves and their clients.
Reducing the amount of information a business gathers is not a viable risk mitigation strategy.
Limiting the information on a client, curbs an adviser’s ability to accurately understand and scope their needs, and provide appropriate advice.
Advisers need to collect vast amounts of personal information and record their observations to gain a holistic picture of a client.
As such, a comprehensive fact find and needs analysis are key parts of the advice process.
Going through this process, helps clients articulate their goals. As a result, they often realise their needs are far more extensive and complex.
It is this level of detail that separates professional advisers from transactional financial specialists like stockbrokers and mortgage brokers, who only need to capture enough information to support a specific recommendation.
There is a place for both. There are also times when it makes sense for holistic financial advisers to operate in a transactional manner and vice versa. The point is that collecting data is essential for ensuring holistic advice is complete, accurate and appropriate.
Therefore, financial advisers must understand the ethics of data collection.
Private and confidential
The ethics of data is a complex and multifaceted subject that touches on issues including privacy, consent and the use of personal information.
At the core, it is about ensuring that clients have control over their data including how it is used and who can access it.
In order for data collection to the ethical, organisations must keep a client’s details private.
Individuals must also be able to give informed consent about whether or not their information is shared.
This requires organisations to be upfront and transparent about the data they are collecting and storing, why they are collecting and storing it, and how it is intended to be used.
Individuals must also be able to opt out, if they choose, and have their information deleted.
On top of privacy and consent, other issues to consider include data security, data accuracy and data retention.
Organisations must take steps to protect the data they collect from unauthorised access, and must ensure that data is accurate and up-to-date. They must have a clear policy for how long data will be retained and how it will be destroyed. Of course, financial advisers are also obligated to retain client records for up to seven years after the relationship with the client ends, which makes data security even more important.
Advisers must understand their obligations to clients to ensure that data collection is done in an ethical and responsible manner.
The art of data collection
Gathering the right information and using those insights is a real skill that’s honed on the job. It is incredible that more time isn’t devoted to this topic in adviser education and training, given how fundamental it is to the advice process.
Professionals often assume that people intrinsically understand why they are being asked to share intimate details about their life.
When it comes to medical advice, that’s probably true.
Doctors are expected to ask a lot of questions, request scans and liaise with other specialists to gain a thorough understanding of a patient’s medical condition and history.
The more questions a doctor asks, the more confidence a patient has that they are doing their job properly.
However, in financial advice, it’s not always obvious why certain information is important and not enough time is spent explaining it.
The advice industry should not treat information gathering as a compliance task but an opportunity to demonstrate the level of care they take.
Devoting time to go through the fact find process collaboratively with a client ensures that clients feel their adviser cares about them and will act in their best interest.
Handing them a form to complete independently before the next meeting may be interpreted as placing a low value on information gathering. Don’t be surprised if clients apply the same care factor to completing forms.
Like most professionals, advisers are time poor. They must balance the time required to gather information and complete documentation with the time required to manage their clients and give advice.
All that said, with increasing volumes of personal information being collected, stored and shared, and cyber criminals becoming more sophisticated and brazen, advisers must find the time and solutions that adequately protect themselves and their clients.
In my next column, I look at how advice businesses can better manage their data collection and management obligations.
