Don’t let clients break the rules

Some clients want to bend the rules to save time. But you work in a highly regulated business and can’t afford a misstep.

People usually follow rules if they understand their rationale. Don’t just say, “It’s firm policy,” or, “Those are the rules.” Give them a thoughtful explanation of why they’re in place.

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Here are some specific scenarios and how to handle them.

Situation #1: Your client wants to trade options. This requires additional approvals and paperwork.

Why: She assumes the form is a formality. It doesn’t matter because it’s her money.

It’s wrong because: Her signature attests everything written above it is true. If problems develop she might attempt to avoid responsibility by saying you knew the income and asset numbers were false.

Points to explain: Risk tolerance and approval are determined by data provided. There are additional ways of confirming data. The signature is a bond and is legally binding.

Solution: “Once you sign you’re attesting the information above your signature is true. The firm will electronically compare information on file and look for discrepancies. You put care into preparing your income tax return. Let’s take the time to complete this form properly. We probably have a lot of this information already on the account form. That should make the process much easier. I’ll get that data and you can get started…”

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Situation #2: A new account or product requires new paperwork. Only one client in the couple is at your desk.

Why: She wants to save time. One partner is often the decision maker regarding money. She considers this standard operating procedure.

It’s wrong because: It’s a felony to forge another person’s signature. Individual accounts belong to that person only.

Points to explain: The risks forgery involves.

Solution: “You don’t ever want to sign another person’s name. Even though it doesn’t feel like you’re committing a crime, that form lasts forever in our records. It’s unlikely you would ever be involved in a marital dispute, but someone could resurrect the form and claim it was forged. Even assuming that never happens, we have technology that routinely compares forms to signatures on file. There are solutions. If your husband is in the car, invite him in. If he’s at home he can sign the form online or we can exchange scanned copies.”

Situation #3: Your client believes he has inside information. He wants to trade far outside his normal pattern.

Why: He thinks it’s a sure thing and he won’t get caught.

It’s wrong because: It’s illegal and he will get caught. If you don’t dissuade him you could be an accessory.

Points to explain: If the information’s right he’ll get caught. If it’s wrong he may have been manipulated.

Solution: “You can’t do that. I realize you think you have inside information because your friend put you onto a good thing. This will likely turn out very badly. When stocks jump after takeover announcements the regulators look very carefully at trades done before and after, so you will get caught. And so will your friend. It’s likely your calls at work are recorded.

“Let’s consider the other extreme. It’s a lightly traded or penny stock. They’re prone to manipulation. The people who got in early and ran up the price need to bring in a fresh group of buyers to support the price while they get out. Rumors play a big part. How much do you know about this company anyway?”

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