Clients doing it themselves can cause glitches

When clients do things on their own, sometimes everything turns out great. But sometimes there are glitches. And sometimes problems arise from other sources.

“Do you have a copy of the trust document for my daughter’s trust account?” the client asked. “The custodian says they need to see it.”

“I don’t, Dick. I didn’t set up that account — you already had it when you came to me — and I haven’t been involved managing it,” I responded. “Did you have a lawyer draft a trust? How did you start that account?”

This wouldn’t happen today, but thirty years ago when Dick decided he’d like to give his daughter some money, he just filled out a trust account application, apparently without having to provide a copy of a trust instrument, and not realizing the trust needed that documentation. Lawyers might say he had created a “constructive trust” or an “implied trust,” but there was no actual trust, and now Fidelity was reviewing old accounts and wouldn’t let it go on this way. 

By this time, though, Dick’s daughter was about 50 and really didn’t need a trust anymore, so Dick as the “trustee” transferred the holdings to a new individual account in her name.

FUNDING A SOLO 401K

“Did I just fund my Solo 401K?,” a client asked.

“I don’t know, Eric,” I responded. “I’m not seeing anything online. Did you send in a check? It’s probably still in the mail.” 

“I can’t remember if I sent in a check.”

“What does your check register show?”

“Nothing, but I think I might have forgotten to record it.”

“OK, so just wait till next week and we’ll see if the custodian processes a contribution.”

“The problem is, I think I may have funded it twice. I remember mailing one check, but I think I might have sent one before that and forgotten.”

“Not a problem: It’s April now, you were contributing for last year, so if you’ve overcontributed we’ll treat the excess as this year’s contribution.”

“Actually, it is a problem: I don’t have enough money to make two contributions now, so if I did double up, then my checking account will be overdrawn.”

Which it was. It turned out the custodian had received both checks in quick succession, probably on consecutive days, and we weren’t able to intercept them before they got deposited. The custodian was very obliging in reversing the second transaction but by then Eric had overdrawn his bank account and several other checks had bounced.

“I know you like writing the checks yourself, Eric, but that leaves me out of the loop. From now on, let me know when you are ready to fund your retirement account and I’ll do the transfer electronically. That way I’ll always know what’s in the works.”

THE CLIENT’S NOT ALWAYS TO BLAME

Sometimes a client glitch might not really originate with the client. A few years ago, I got this email from a longtime client:

“Hi Michael,

“I want you to initiate an outgoing wire transfer today. Kindly email me back with information you will need to complete this. And the charges for this wire transfer. I will be very busy with my nephews funeral that passed on yesterday night. Kindly respond to my email frequently as the phone reception is really bad here.

“Can’t thank you enough!

“Thank you!

“Linda.

“Here are the information you need, The amount is $21,300. Please send me the confirmation when it is done. Thanks much.”

The email included a bank name and address, account name, a routing number (called a “routine” number in the email) and the account number. 

If you’ve been in the business for a while, you’ve probably had something like this yourself. The writing was a little off — a little stiff and awkward, with some errors — and didn’t sound like Linda. I knew she had grown up here in Massachusetts and she had never mentioned any relatives in Texas. I couldn’t imagine why she would need $21,300 if she were there for a funeral. Looking more carefully, I saw that the email address contained her usual AOL address but with a different domain name at the end. 

A quick phone call to Linda confirmed that she had not emailed me — and I gave her the bad news that her AOL account had been hacked. I called the security department at the bank to let them know the account was being used for fraud.

[More: The diverse parade of advisory clients]

Michael Broad is a financial planner and investment advisor in Newton, Massachusetts. Got a good client story or problem you’d like to see in a future column? Email Michael Broad.