If you're advising a husband-wife pair, your duty is to both
This month's question comes from an adviser whose client — and old friend — made an unethical request behind his spouse's back.
Q: I am a CFP professional and provide financial planning advice and investment management assistance to my former college roommate and his spouse. They are both physicians and they married after they finished their residencies 10 years ago. I am the godparent of their 5-year-old son. They are in the top 10% of my clients and insist that I charge them at the same rate as other clients with similar assets. They didn't want any special treatment ... until recently.
My former roomie came to a meeting at my office without his spouse. That was the first sign that this wasn't going to be the standard review session, as his spouse had attended all of our previous meetings. When I asked why she wasn't there, he told me that he didn't tell her about the meeting so we could speak confidentially. Then he dropped an ethical bomb in my lap.
BEHIND HIS WIFE'S BACK
The purpose of the meeting was to identify assets that he could liquidate without his spouse knowing. I asked why, but he wasn't very forthcoming. “Gambling debts?” I asked. My roomie spent a lot of our undergraduate days winning card games with unsuspecting freshman. He shook his head.
“Do you have a drug problem?” I asked, hoping that this wasn't the reason he needed money.
“No,” he answered. “I could get treatment for that. This problem is a bit more permanent.”
“Permanent?” I asked.
“Yes,” he answered, “like this is not going to go away. I had an affair with one of the nurses last year and fathered a child. I insisted on a paternity test and the kid is mine. The mother wants me to pay child support. She agreed to keep it all quiet and not go to court if I pay a lump sum and then monthly payments. If I don't agree, she'll let my wife know and file suit. Then I can add alimony and start child support for two families. I need your help and it has to stay in this room.”
I want to help my friend, but I am worried about the consequences, especially if his wife ever finds out that I was part of a scheme to keep her in the dark.
Signed, Stuck between a rock and a hard place.
HELP HIM OWN UP TO IT
A: It is understandable that you want to help your college roommate, but he hasn't helped you by asking. What he wants you to do is wrong because it is unfair to his spouse. It will transfer assets that should accrue to her family to benefit another family without her knowledge. She should have a say in how their assets are allocated as a couple.
Your friend wants you to violate the trust his wife placed in you when they hired you as their financial adviser. As a CFP professional, as well as an investment adviser representative or registered investment adviser, you have a fiduciary duty to act in your clients' best interest. The fact is that both parties are your clients, and you cannot act in a way that benefits one client over the other. Your friend is asking you to help him hide these transactions from a person to whom you have a fiduciary obligation. You cannot help him without violating her trust.
You should help your friend accept accountability for his own behavior and not hide it. Secrets like this eventually come out and cause even more disruption. The honorable course of action for your friend is to tell his wife about his infidelity and the child. You can provide support to both of them by helping them to understand the financial impact together.
If he is unwilling to let you do that, you may need to end the advisory relationship. You should also let him know that you will have to answer honestly if his spouse asks you why they are no longer clients. Let your friend know that you will not be able to keep the meeting or its content confidential if contacted by his wife's attorney, since he does not enjoy privilege in your relationship with him. The best course is to get everything out in the open, deal with it and then start working on healing the wounds.
Dan Candura is founder of the education and consulting firm Candura Group. Write to him to submit a question at InvestmentNews.com/ethicist. All submissions will be treated confidentially.
