Ethically speaking: Double dilemma

(March 2007) We asked FCSI designees to respond to your ethical conundrums — everything from culling clients to specific fund recommendations and a host of suitability issues. In this month’s column, FCSI Stuart Hoffman offers his suggestions for dealing with an unhappy client who thinks her advisor is not being sufficiently proactive.

You wanted to know… Caroline’s advisor works at ABC Investments. Although she is generally happy with the services she receives, she has not been totally satisfied recently. When she asked for guidance on saving for her 2-year-old son’s future education, his advice was not up to par — his recommendation did not include an RESP, which surprised her. She has been hearing a lot about this concept lately and her friends’ advisors have used RESPs to plan for their children.

All of this makes Caroline feel that he is not giving her investment plans the required analysis. If this is the case, she also wonders what other parts of her plan aren’t getting enough attention.

Caroline approached an IA at another branch of ABC Investments and asked her if she would take her on as a client.

This leads to two questions: First, what should this prospective advisor do? Should she accept Caroline as a new client even if Caroline is a client of an advisor who works at the same firm? Second, what should happen to the advisor who gave the poor recommendations in the first place? Should Caroline speak to the advisor himself about her decision to switch professionals, or should she take it to a higher authority?

Stuart Hoffman, FCSI, Brampton, responds:

This is a common situation that tests the ethics of both the advisors and their firm. Most firms have definite policies regarding clients moving between advisors in the same firm. Generally those policies will involve the following steps:

1. The advisor should first encourage the client to go back to her advisor and discuss the problem and current dissatisfaction.

2. The newly contacted advisor should contact the original advisor and discuss the situation with them, suggesting that they discuss this with the client.

3. If the client cannot resolve the problem and has decided to leave the original advisor, the potential advisor should then ask the client to notify the original advisor in writing and provide a copy.

Let’s take a look at why these steps are important to follow.

1. To begin with, the new advisor was not at the original meeting and has no idea what was discussed. At this time she is only hearing one side of the story. Many times a client has asked why I did not suggest a product that they heard about. My answer is that while the product might be appropriate for their friend, I did not believe it met my client’s goals or risk tolerance. In addition, I would always hope that my clients would come to me if they had a problem with my advice and give me an opportunity to address their dissatisfaction. Turn the case around and I would pretend that it was my client meeting with another advisor in my firm. How would I feel?

2. The policy of contacting the original advisor is also a good idea. First off, for privacy reasons, we must inform the potential client that we are going to do this and get their authorization. If the prospect will not authorize this, then we should not go any further. Once again, it is important to hear the original advisor’s version of the story, inform them that we did not solicit their client and that we suggested the client speak to them directly.

3. If all else fails, it is important for the client to inform the original advisor about her decision to switch, in writing, because it authenticates to the firm the client’s intention. If possible, the letter should indicate that the client was not solicited. The last step is for the original advisor to agree that if the two parties cannot repair the relationship, the next best thing is to keep the account with their firm.

More Ethically Speaking:

• Loose lips • Unconsenting adults, part 1 • Unconsenting adults, part 2 • Trailer talk • Grievous gifting? • Cut loose or cut out?

These guidelines all adhere to a primary code of ethics published in the CSI Handbook that says “registrants must conduct themselves with trustworthiness and integrity, and act in an honest and fair manner in all dealings with the public, clients, employers and colleagues.”

We all want to pick holes in other advisors’ plans and suggestions to try to win the client, but doing so rarely makes us look trustworthy.

By trying to repair the original relationship and only taking the client if that process proves to be futile, we are exhibiting true professionalism, integrity, honesty and fair manner in dealing with the client, our colleagues, and our employers.

Stuart Hoffman, FCSI, Investment Advisor, Berkshire Securities Inc., Brampton, Ont.

FCSI is a registered trademark of CSI Global Education. Fellow of the CSI (FCSI) is a designation awarded to industry professionals who have met set standards for industry experience, advanced education and solid endorsement from their peers and superiors.

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

(03/20/07)