Outside-IN

Ask the Ethicist: Ethical lapses can destroy a career

A lawsuit that a client filed against her financial adviser reads like a soap opera, with plenty of sex, lies and betrayal

Nov 12, 2018 @ 11:35 am

By Dan Candura

I came across a lawsuit involving a dispute between a financial planner and a client. That is somewhat unusual as most disputes are settled through arbitration — most firms insert language in their investment agreements that force disgruntled clients to file claims through Finra arbitration rather than the courts. This case, however, reads like a soap opera, with sex, lies, betrayal and blackmail in abundance. And there are lessons about how ethical lapses can destroy a career.

The advisory relationship began when a wealthy couple in a small rural community started working with a local financial adviser employed by a national firm. All went well for a number of years. But the relationship was interrupted when the adviser moved to a neighboring state, suddenly and unannounced. The wealthy couple felt abandoned and the account wasn't actively managed for a couple of years until the adviser returned and rekindled the advisory relationship.

The wealthy husband was depressed about many aspects of his life and committed suicide using one of the weapons from his own extensive collection. He left behind a widow struggling with loss of cognition and a daughter who lived in a big city more than a thousand miles away.

When the daughter returned home for the funeral, the adviser told her that her father had asked him to make sure that he would take care of her and her mother. The daughter was grateful for the adviser's help, expecting that her stay in her hometown would be temporary and that she would return to her city life soon.

She worked closely with the adviser to consolidate accounts and make arrangements for the financial stability of her ailing mother. They grew close. She had been away from home for a long time and worried about her mother's advancing illness. Soon, an intimate relationship began. Despite this, the adviser continued to manage the family's wealth, including the daughter's inheritance.

Over the next few months, the daughter describes a deteriorating situation in which the adviser, becoming increasingly controlling, put pressure on her not to return to the city and to bring her other assets under his management. She didn't break off the relationship but did leave to return to the city, only to be called back several times by the adviser to deal with issues affecting her mother. These were almost always false alarms but often ended in another tryst.

The adviser's demands grew. He gained full authority over the mother's accounts and then over the daughter's as well. Losses mounted and he traded more aggressively to make them up. Sometimes it worked, mostly it didn't. The daughter knew she should break off the relationship and fire him as the family's adviser but was afraid. The adviser would get highly emotional when things didn't go his way.

(More: Ask the Ethicist: CFP professional wonders about possible part-time gig)

One day, while the daughter was visiting her mother over the holidays, an administrative assistant from the adviser's office stopped by unexpectedly with startling news. She thought the daughter should know that the adviser was also sleeping with her. And she didn't think it ended with just the two of them.

For the daughter that was the last straw. She called the adviser to end the relationship. He was ashamed and distraught. He told her that he couldn't help himself and that he was sick. He had a disease, an addiction, he said. He told her that if any of this came out, he would be fired and his life would be ruined. Finally, he told her that he would shoot himself just as her father had, and hung up.

The suicide threat had a jarring impact on the daughter. Her father's death was unexpected and traumatic. She still had nightmares where she could see her father pulling the trigger even though she had not been there when he did it. She had been to counseling and that helped a bit. Getting all of the guns out of the house had been therapeutic, too. She had even given one to the adviser. He had told her that it was one he had always admired in her father's collection.

The thought that he might kill himself using a gun she provided was more than she could bear, so she drove to the adviser's home to try to stop him. She used her key when he didn't answer his door and went inside. Hoping that she was not too late, she searched the house and found him alive, sitting in his study with the gun she gave him under his chin and his finger on the trigger.

This was the same way her father committed suicide and matched her recurring nightmares. Through tears and sobs she begged him not to kill himself. He refused, saying that he couldn't face the shame of being exposed in the place he lived his whole life. If she ended the affair and reported him to his firm, he would rather just end it all. He told her it was better this way.

She told him that if he put the gun down she wouldn't report him to his firm, but that he had to agree to be faithful to her; she knew there were other women. After more tears and persuasion, he reluctantly said he would not shoot himself if she promised to move home permanently. Seeing no other options, she agreed and he lowered the gun. That was when she noticed the gun wasn't loaded. There was no clip in the grip. It was all an act. It was a tableau that he knew would make it easy for him to get what he wanted

The next day, her lawyers contacted the firm with formal complaints of breach of fiduciary duty as well as other charges. The adviser was fired immediately. Rather than pursue claims through arbitration, they filed a lawsuit against the adviser personally for the financial and emotional damages sustained by the daughter. The daughter has reentered counseling and found a different firm to help her and her mother.

There is no question that this adviser's romantic relationship with an existing client was unethical. He manipulated and misled her using information gained during their affair to advance his own interests and to coerce her into covering up his misdeeds. He did not meet his duty of loyalty to act in her best interests nor his duty of care to provide objective advice with skill and diligence.

Sexual relationships between clients and advisers violate professional standards in the same way they would between doctor and patient, or student and teacher. Advisers should learn from the #MeToo movement and from this case that there are clear boundaries that must never be crossed in professional relationships.

(More: Ask the Ethicist: How should an adviser deal with a paranoid older woman?)

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

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