Ethically speaking: Cut loose or cut out?

(April 2006) We asked FCSI designees from coast-to-coast to respond to your ethical conundrums — everything from culling clients, to specific fund recommendations and a host of suitability issues. In our premiere column, hear what FCSI Bev Moir suggests for an advisor who is struggling between staying put or shipping out.

You Wanted To Know…

In an effort to attract and better service high-net-worth clients, the brokerage that I work for has a strict policy whereby advisors are only permitted to service a maximum of 100 accounts. I have been an advisor with the firm for 40 years and most of my clients, now retirees, have been with me since I entered the business.

Over the years, I have developed close relationships with my clients and they rely on me for investment advice, even though their accounts are relatively small. Recently, I have had a series of meetings with a number of very wealthy individuals who are interested in opening accounts with me. However, because the firm is very rigid in its policies, this would mean that I would have to drop some of my existing accounts to take on these new clients. Should I stop servicing some of these small clients to take on the larger, more profitable accounts?

Bev Moir, FCSI, Toronto, Responds:

In an environment where investors have many choices, advisors greatly value client loyalty. They strive hard to earn the right to manage their clients’ investments and work to maintain that relationship through excellent service, provision of trustworthy advice, and attaining appropriate investment returns.

Obviously this advisor has been successful based on these measures. Maintaining 40 years of client relationships is a feat to be proud of and the advisor likely feels a strong bond with his clients who have contributed to his success over time. Now, however, he wants to be open to taking on new and potentially more profitable clients, while simultaneously sustaining his existing relationships. Unfortunately, he sees a dilemma, as he realizes the first option will likely fall at the expense of these existing, strong relationships.

Depending on the advisor’s personal and business goals there are workable solutions. For many advisors, 40 years is a long time spent developing trusting client relationships, and upon reaching this milestone, many might in fact be considering retirement — and therefore regard it impractical to take on new responsibilities at this stage in their careers. A feasible solution in this case is for the advisor to refer these new prospects to an associate.

Alternatively, he might in fact be eager to take on these larger clients — after all, it is a legitimate business goal that both he and his firm share. And although the advisor might feel constrained by his company’s policy of limiting the number of clients, he should consider the fact that, in all likelihood, his existing clients would understand his reasons for passing them over to another equally competent and trusted advisor. Just as clients have goals for their financial planning, it’s only natural that a professional advisor might want to pursue some new goals of his own in order to make his practice thrive. Further, every business should have a clearly designed succession plan in place to ensure a seamless transition for existing clients. By transferring the existing clients to the associate, they can feel secure in the knowledge the firm is committed to keeping clients’ financial interests top of mind in its ongoing role overseeing their investments.

Beverley J. Moir, MHSA, FCSI, CIMA is a financial advisor with ScotiaMcLeod

If you have an ethical dilemma that you’d like to ask one of our FCSIs, please e-mail your question to heidi.staseson@advisor.rogers.com

(04/25/06)

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.