A case study in handling renegade client offspring.
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Call it client psychology or whatever you want, but when personality and behavioral conflicts disrupt a planning engagement, that's every bit as much a practice management issue as marketing or technology.
And advisors are probably more reluctant to discuss personal problems they're having with clients than they are other types of practice issues, but if you spend time on some of the industry's private discussion forums, you will find a few brave souls asking others for advice. As did Deborah Frazier recently.
Frazier, owner of Frazier Financial Consultants in Chapel Hill, N.C., describes the situation this way:
"I have a widowed client whom I've worked with since 1999. She has a grown son, whom I have met, as she wants him to be informed about her finances. He got married a couple of years ago and his new brother-in-law is an 'insurance advisor' with only a couple of years' experience. The brother-in-law has been bragging about how much money he is making for clients, so the son now wants his mother to work with the brother-in-law.
"The mother does not trust insurance agents and is hesitant to switch, so she wants me to talk her son out of this plan. I am tired of the whole situation as we have discussed, at length, the pros and cons of commissioned planners and the annuities that the brother-in-law is recommending. I've also told her I can't be objective in helping her choose me over another advisor. This is between her and her son. The easy way out is to just let her go as a client. But the caring part of me wants to keep her safe, which I am pretty sure she won't be with the brother-in-law. My husband, a psychiatrist, advised me, 'Stop working with her; this is too upsetting to you and she will probably be pressured to leave anyway.'"
Frazier's post to the discussion forum ends with, "How do you handle grown children that get involved with their parents money as if it was their own? He is looking over my shoulder every minute and I am sick of it. I would really appreciate some advice."
The responses to Frazier's post ultimately helped her make a decision.
First, Blaine Dunn of Dunn Financial Advisors, a fee-only advisory firm in Winchester, Va., gave her the low-down on where the brother-in-law was coming from: "As a person who once had an insurance license and was a registered rep, I can tell you this--the training for most newcomers to the business is to make a list of contacts to develop business, starting with family and friends, a so-called 'warm market.' The rep's job is to gather some data, determine a need, and then sell a product to fill that need."
Dunn advised, if Frazier wanted to take the tact of challenging the son and what he believed was best for his mother, ask him to show his mother the brother-in-law's payout schedule for the products he sells. Ask the son if the brother-in-law is paid the same for all products; most likely, the payout for annuities will be higher than for mutual funds. Ask the son how the brother-in-law did, performance-wise, against a broad index weighted in proportion to the asset class mix of his clients' portfolios. In other words, try to convince the son that the brother-in-law's methods, even if well meant, weren't in his mother's best interest.
Other respondents gave Frazier advice more on the personal issues involved. For example, Kathleen Cotton at Cotton Financial in Lynnwood, Wash., advised, "You don't want to be in the position of arbitrator between the son and mother." Walter Kerrigan II of the Institute for Financial Planning, Inc. in Novi, Mich., cautioned, "Your job is to realize it's her wealth and ultimately she has to make the final decision." Donna Skeels Cygan of Essential Financial Planning in Albuquerque said, "If you keep yourself in the middle, it will be stressful and it may be a losing battle." They all advised Frazier to let go of the client.
One irony in all of this, as Dunn points out, is that Frazier is a fiduciary by law. The registered rep is not a fiduciary by law and is exempt from the 1940 Investment Advisers Act. That would imply that Frazier has more of a duty to take the best possible care of her client. Yet, does the advice she received to let go of the client contradict that duty?
Only to a point, most of these advisors would say. For example, Marge Schiller of M.K. Schiller Consulting in Brandon, Fla., suggests that Frazier fulfill her fiduciary duty and still end the relationship, if necessary, by "sitting down with the client alone to listen to her preferences and remind her it's her money and it must last the rest of her life. It is up to the client to decide the approach she prefers. She is making a decision by deciding not to stand up to her son."
And Schiller recommends Frazier send a "CYA" letter to close the engagement, reminding the client of the potential risks of the more aggressive variable annuity strategy the brother-in-law will probably have her implement. Thus, Frazier is fulfilling her fiduciary responsibility in the way in which she severs the relationship.
Is there anything that can be done to avoid these situations from the beginning? Frazier attempted to include the client's son in meetings so he could be more familiar with his mother's finances while also "buying into" Frazier's advice. Says Cotton, "We always have that risk with clients; widows will remarry and new husbands will be of great influence, or children will know of someone else who is bigger, better, or prettier than you. Life is too short to get involved in these issues when you're having to defend your worth. Your worth should be self-evident and, if the client don't see it, then vaya con dios."
So how did Frazier finally resolve this dilemma? "After one week of intense listening to my client and offering suggestions, I realized she was in an impossible situation. She asked if the brother-in-law could manage her trust account with me continuing to manage the larger IRA account. I initially thought that it certainly was in her best interest for me to do that, but then reason set in and I saw the potential mine fields ahead. Regrettably, I sent her a termination letter, recommending CPAs and giving her several articles on variable annuities."
Is that the end of it? Not when you've taken a personal interest in your client, as Frazier does. "I feel horrible about this. I took this woman to a breast cancer biopsy, met with a builder for an addition she was contemplating, went through her husband's death with her and her children, the birth of two grandchildren and many other happy and sad occasions. If I felt that she was in good hands, I would not be grieving the end of this relationship."
Frazier asks, finally, "Is this the downside of the 'softer' side of planning?"
In other words, do we stick to the numbers and forget about establishing a closer bond with our clients so as to avoid these difficult feelings when a client doesn't work out? That's every reader's call.
What would you do?