Sunday, September 22, 2013

Telling clients the truth even if it drives a wedge



I am not a divorce lawyer, financial adviser or couples counselor, but a reader who is an investment adviser sought my counsel about an issue that likely could use the wisdom of someone engaged in all three professions.

The reader sought advice about "pre-divorce" counseling, an interesting term since most married couples would likely refer to themselves as "married" rather than "pre-divorced." Since a couple's assets are split in a divorce under specific rules, the reader wanted to know if he should discuss divorce rules when advising a client about an inheritance.

As he explains it, inherited assets remain "separate property," if the inheriting client keeps the assets in her own name. So if Ms. Smith receives an inheritance and puts it into the "Ms. Smith living trust," she keeps it all in the case of divorce. If she puts the money into the Ms. and Mr. Smith joint checking account, it has now been co-mingled. If the couple should divorce, the funds are subject to a 50/50 split because of the co-mingling.

"If I bring the subject up, it can drive a wedge into an otherwise happy marriage," my reader writes. ("Gee dear, you don't think we'll have a future together?") His concern is that if he doesn't bring it up and the client co-mingles the assets and loses half of her inheritance in a divorce, then the losing spouse will sue him. On the other hand, if he advises the inheritor to create a separate trust and the couple divorces, then that losing spouse sues him.

"Or," he writes," I drive that wedge into a happy marriage and divorce ensues. I get sued."

Either way, he figures, "I've created a problem." He doesn't care what they do, only that he protect himself from liability for "home wrecking."

"Should I bring it up at all?" he asks.

I can't tell my reader how to protect himself from such a liability any more than I can tell him how to protect himself should he give his clients investment advice that turns sour.

It's not up to the financial adviser to make the decision about what to do with a couple's inherited money. But it does seem to be his responsibility to lay out the couple's options and to be explicit about the positives and negatives of various options. Presumably, such advice is what the couple is going to the financial adviser for in the first place.

Couples may not want to discuss the possibility of death either, but that doesn't let estate lawyers off the hook from explaining how to best protect their assets should they die. To not do so would simply be irresponsible. Similarly, when a couple goes to a financial adviser for financial advice, he should give them the best advice he can give them and lay out all the options from which they can choose.

Because his clients are going to him for financial advice, then the right thing for the reader to do is to give them the best advice he can give them, even if that means bringing up issues that might be uncomfortable. If that drives a wedge in the relationship, then it's their responsibility to decide how to navigate that wedge. 

Jeffrey L. Seglin, author of  The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business and The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apartis a lecturer in public policy and director of the communications program at Harvard's Kennedy School. 

Follow him on Twitter: @jseglin 

Do you have ethical questions that you need answered? Send them to rightthing@comcast.net. 

(c) 2013 JEFFREY L. SEGLIN. Distributed by TRIBUNECONTENT AGENCY, LLC.

4 comments:

Anonymous said...

Jeffrey, with all due respect, this subject, while valuable from a legal perspective or would be of interest to someone with particular interest(s) finding themselves needing such information, I don't feel the general subject of knowing how to split an estate is of general interest. Sort of, if you will, we know these subjects come up, but it is not of interest in a general ethics discussion.

Charlie Seng

Phil Clutts said...

Normally I agree with Mr. Seng, but I would argue that it is not “fair” to challenge any one example Jeffrey comes up with as not being of “general interest.” For example, one that appeared in his blog had to do with my temptation to poison moles tearing up my lawn, even though they were a protected species. Probably more people will have to deal with whether or not to commingle an inheritance than to poison a mole. While every aspect of life can have an ethical twist, it’s not the relevance of a specific example cited here that’s important; it’s how an ethical foundation should shape the actions we take as we encounter the variety of dilemmas life poses.

William Jacobson said...

Jeffrey,
This is far more a question of the standards of professional responsibility of the financial services industry rather than general ethics. The question appears to be fairly straightforward. The financial planner owes a fiduciary duty to the client. The client engages a financial planner for two things - knowledge of the industry and advice from one better versed with the territory. The commingling issue would definitely be one of the issues that the typical layperson may not know and definitely falls under the issues that this planner would need to disclose in order to serve with integrity, objectivity, competence and fairness. He can then guide the couple on their options to traverse the issue.

This would appear to be an amazingly basic issue for a trained financial planner to be having trouble with seeing as the issue would occur with every inheritance with a married recipient. Shame that newspaper columnists don't have a duty to disclose the name of the questioning financial planner so that we the public can avoid him.

William Jacobson
Anaheim, CA

LauraLou said...

Telling the truth to clients is really important, if anything it helps to build trust between company and client.

I recently went through Divorce proceedings and used Tilly, Bailey and Irvine - they were honest with me at all times and that really helped in such a sensitive case.

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