Ask the Ethicist

Dan Candura answers readers’ questions on the ethical dilemmas financial advisers face.

When an ultrahigh-net-worth prospect has needs beyond your expertise

An adviser asks the ethicist about a wealthy biotech CEO referred to him, whom he would like to take on as a client but isn't sure he could adequately serve

Oct 2, 2017 @ 1:46 pm

By Dan Candura

QUESTION

One of my best clients referred me to his old college roommate who is now the CEO of a promising biotech start up firm in my city. Let's call him Sam. I appreciate the recommendation, but it created an unusual problem that I am unsure how to handle. Sam is very different from my typical clientele.

I run a fee-only practice and the bulk of my clients are pre-retirees with net worth less than $2 million. They are very middle market with grown kids, a home, two cars and a 401(k). In fact, that pretty much describes my client who referred me, except for the addition of income from a good-size trust his grandfather established years ago.

When he talked to me, he didn't have much information about Sam, other than he was brilliant at science but a disaster at marriage and managing money. My client didn't provide the specifics of Sam's situation, saying that he told Sam about me and how I had helped him sort out a problem with the trust. Sam asked him to have me call to set up an appointment. That took a while. Sam travels internationally a lot and it was hard to get on his calendar.

(Ask the Ethicist: How can advisers best disclose conflicts of interest related to compensation?)

When we met, I learned that Sam is extremely wealthy — he's not high-net-worth, he "ultrahigh" with investments and real estate in the U.S. and overseas, as well as deferred compensation and stock options. His previous adviser was provided by the pharmaceutical firm he left to take the position at his current firm. His old firm cut that off when he left, insisting he sign a strict confidentiality agreement with a non-compete clause.

I like Sam. He's smart and personable. He's also very much a demanding Type A personality. His financial planning needs are way beyond any experience I have had in the past. I would love to work with him, but am afraid that the learning curve to get up to speed would be too great. I don't want to disappoint my client by turning down the referral, but I also know that Sam's needs are beyond my abilities — for now. What should I do?

ANSWER

There are several issues that need to be addressed as you figure out what you ought to do. The first is to recognize that you have significant conflicts of interest.

Sam would substantially upgrade your client list and probably your income. Sam could open doors that would change your business in meaningful ways — if you can deliver. The second is your own awareness that you did not have the ability right now to provide Sam with high quality advice. While it is tempting to try to "fake it till you make it," that exposes both you and Sam to very real risks. A mistake in that "ultrahigh" altitude could be devastating for you both. Finally, your gratitude to your existing client for his help may make it harder for you to see the correct path.

(Ask the Ethicist: What should advisers do when married clients have conflicting objectives?)

The first step on that path is to act with integrity and tell Sam the truth. You owe him an accurate representation of your skills and experience. My guess is that a smart guy like Sam will appreciate a candid and straightforward disclosure of the challenges he represents. Together you may be able to identify a role you can play in helping him manage his personal finances and the kind of help and support you require to deal with the complexities. Most likely Sam would value a team approach with his accountant and attorney, responsible for the technical aspects, while you focus on leading a coordinated game plan. But he won't appreciate being kept in the dark, so be up front with him and share your concerns. Tell him about the help you will need and how you plan to get it. Make sure he understands that you are committed to putting his needs first and acting in his best interest. That includes stepping aside or getting additional help when needed.

Dan Candura is founder of the education and consulting firm Candura Group. Ask him a question here. All submissions will be treated confidentially.

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