Sunday, September 08, 2013

Deciding whether to do your best work

A reader who is an investment adviser from California writes that over the years he's discovered that a particular client sometimes executes the investment ideas he gives to him through others -- a "brother, friend, or whatever."

The reader recognizes that because of the client's personal relationship with the other adviser that this situation is not likely to change. But, he writes, that he is far more skilled than any of his clients' friends or brothers.

"So I'm being used for my ideas and given a few crumbs to keep me happy," he writes.

While the clients don't demand a lot of time, he writes that he can see that he is having an "outsized effect" on their financial situations because of the good ideas he presents them that they then execute through others.

"Considering that these clients will continue to give me small business and give the big stuff to others, should I continue to give them my best ideas?" he asks.

The reader writes that he always refers his clients to lawyers for trusts, wills, and other legal documents. "I do it as a free service," he writes. "Failure to set these things up on a timely basis leads to a great deal of unhappiness later for clients or their families."

Still, he wonders if he should tell his clients about these legal tools and send them to a lawyer if he's not getting all, or the bulk of, their investment business.

He wants to know the right thing to do about "this conundrum" he is facing.

"Financial advising isn't a charitable service in these cases," he writes, "so do I have a moral or ethical obligation to do my best work for a client who then places the business that these ideas generate with others?"

The reader asks quite a few questions. Other financial advisers or planners are fee-based so they charge by the hour or the plan. But because the reader's compensation is based on a percentage of money invested or managed, he only makes money if a client actually invests through him. The reader has no obligation to do business or spend his time giving advice to a non-client if he doesn't want to.

But once he decides to do business with a client, then the right thing is indeed to do the best work he can for those clients. It may infuriate him that these clients only invest a small percentage of their investment portfolio through him, but the reader would be on firmer ground severing business ties with a client rather than doing less than his best work.

Part of doing his best work includes making intelligent referrals to other professionals, such as lawyers, who can provide their own best work to the client. Holding back on such referrals because of a perceived slight that not enough of a client's business is coming your way is at best unprofessional.

The right thing is to either take on a client and do your best work, regardless of the size of his portfolio, or to simply pass on doing business with the client, if his portfolio is not large enough to meet the criteria you set. 

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Anonymous said...

This conundrum is out of my line but I can give a personal opinion. The question comes from a professional who is being taken advantage of by a client, who is using ideas he gives to his client, who then takes the advice to some other "friend"!! How low can you get? With a client like this, he is getting cheated by a "friend", who not only doesn't truly value his friendship and professional association but is willing to cheat and take the idea to a competitor. Doesn't this guy (gal?) have a professsional association to whom he could report such breeches of trust?

Charlie Seng
Lancaster, SC

William Jacobson said...

The client has no obligation to invest his entire portfolio with this adviser but if the client is using the adviser's tips through another broker then he is stealing from the adviser. Yes, the information is paid for but part of the quid pro quo here is that if the client were to act on those tips, he would do so through the adviser. He needs to sit down and discuss this with the client and either change this behavior, change his fee structure or dump the unprofitable client.

William Jacobson
Anaheim, CA