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How Far Should Your Planner Go to Save You From Yourself?

Suppose one of my clients has his heart set on using half of his retirement account to buy each of his grandchildren a new car. Or a client in a panic over falling markets wants to sell all her stocks and buy gold. What is my responsibility as their financial planner? How far should planners go to try to keep clients from making serious financial mistakes?

DangerSignIt’s important for planners to respect clients’ competence and ability to make their own life decisions. Client-centered planners also need to remember that the goal is to help clients get what they want, not what the planner might want or think the client should want. On the other hand, should a planner stand idly by and watch someone walk off what the planner perceives as the edge of a financial cliff?

Part of the answer to this dilemma stems from a planner’s legal obligation. Most advisors who sell financial products have no fiduciary duty and are not legally required to put their customers’ interests first. Fiduciary advisors, which include those who are fee-only, do have a legal obligation to act in their clients’ best interests.

What is the legal responsibility, then, of a fiduciary planner who believes clients are about to do themselves financial harm?

Let’s say I have a client who is about to do something that may be viewed by a court of law as “extreme” or “imprudent.” (An example would be putting all his money into one asset class like gold, cash, penny stocks, etc.) At the minimum, I would need to protect myself by carefully fulfilling my legal responsibilities. This would include making certain I emphasized to the client that, given the research and data available, his actions could hurt him financially. I also would want to be sure the client fully understood and took responsibility for his actions.

In terms of the broader aspect of what financial planners owe to their clients, meeting this legal obligation is not enough. In my view, fiduciary planners’ obligation to put clients’ interests first includes an ethical responsibility to do no harm. Sometimes this ethical and legal responsibility requires planners to give clients information they may not want to hear.

As we focus on the clients’ goals and help them carry out their wishes, part of our role is to make sure they have all the information they need. This gives us a responsibility to educate ourselves so the advice we offer is as sound as we can make it. We also need to do whatever we can to help clients hear and understand that advice.

Clients who are hovering on the edge of a financial cliff are typically about to act out of strong emotions such as fear. They often can’t take in financial advice until they are able to move through that fear. It only makes things worse if financial advisors shame clients, bully them, or abandon them to their fears. The challenge for planners is to help clients reach a more rational place so they can gather additional information and make decisions that will serve them well.

With the right kind of support, clients are almost always able to get past the fear that is pushing them to make imprudent decisions. Providing such support by working with clients’ emotions and beliefs about money, perhaps with the help of a financial therapist or financial coach, is well within a financial planner’s ethical responsibility. Our role is not merely to do no harm. It is also to use all the tools we have to help clients act in their own best interests.

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One Response to How Far Should Your Planner Go to Save You From Yourself?

  1. Bobbie Munroe November 18, 2014 at 10:18 am #

    Thanks for this Rick. It can be VERY heard to know where to draw the line as an advisor. I am just so thankful that I met you and other who have shared many tools that help draw a client back from the edge of the financial cliff. As you said, they ALMOST always work:-)