Ask the Ethicist: Should a financial adviser accept an inheritance from a client?

Q: I’d like your opinion about an inheritance question.

My father’s sister passed away recently. My father was her only relative and visited her every day. He took care of her home, her shopping and took her to appointments. About a week after her death, my aunt’s financial adviser called to let my father know that he could take anything he wanted from the house prior to a formal inventory. He also wanted to set up a meeting to go over the will. My aunt chose the financial adviser as the executor of her estate together with an attorney friend of the financial adviser.

When my father attended the meeting, he learned that the estate was valued at close to $1,000,000. The will named my father to receive 25%, a long-time friend of my aunt to receive 25% and the rest to go to the financial adviser. The financial adviser said that he tried to persuade my aunt to split it evenly into thirds but she would not do it. The financial adviser said he believed this was because he had made a lot of money for my aunt over the years.

Even if we believe the financial adviser’s story that he tried to increase my father’s share, is this ethical?

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A: This situation certainly gives the appearance of impropriety. It is not proper for financial advisers to assume the role of executors or trustees for clients since it creates significant conflicts of interest. It raises the question of undue influence and whether the client (your aunt) received objective advice in her best interest. The fact that an attorney with ties to the financial adviser prepared the will exacerbates the conflicts.

Of course, if the financial adviser truly believes the current split of the estate to be unfair, he is free to disclaim all or part of his share. The fact that he has not done so raises additional concerns and appears disingenuous.

Your father has several options available. Some will require expense. First, he should let the financial adviser know that he intends to pursue the matter and is retaining an attorney to represent his interests. He should tell the financial adviser that unless the adviser resigns as executor and disclaim the inheritance, he will challenge the will in court. He should inform the financial adviser that he will be bringing the matter to the attention of the adviser’s firm and with any professional organizations of which the adviser is a member.

The financial adviser overstepped his bounds when he accepted the role of executor and assisted in the preparation of estate documents that benefit himself more than an attentive brother. Your aunt’s silence on the matter raises additional questions of undue influence by the adviser. Unless there is evidence of estrangement between your aunt and your father, the court is likely to make changes to the distribution. If the financial adviser is wise, he will step down immediately and disclaim any rights to his former client’s assets.

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