Advisors rely on their own judgments and instincts when it comes to serving friends and relatives.
The relationships advisors have with their clients
are supposed to be based on trust, professionalism and mutual respect.
But when clients are close friends and relatives, or gradually become
friends, do the rules change?
Based on interviews with advisors who have confronted the issue, it's a question with no simple answers.
Take the example of Ed Stuart, a wealth manager at RegentAtlantic Capital LLC in Chatham, N.J., who has deftly taken on the business of friends and relatives throughout his career. Stuart counts about 15 of his 90 clients as close friends and relatives, and feels so comfortable doing so that he gladly takes referrals from associates who are uneasy about such relationships. "I've been around for a while and, to the surprise of my cohorts, have successfully managed that type of relationship most of the time," he says.
Yet even Stuart admits that things can get awkward, such as the time a longtime friend and client took him aside and confided that he had a mistress. The friend's wife was also Stuart's friend and client. "I knew about it and it made me uncomfortable as it would anyone if you socialized with the couple," he said. His fear was that the husband would ask for advice on how to hide money from the wife-a request Stuart would have refused.
Then there was the time he was at a holiday party that was attended by a good friend and client. Stuart remembers walking into a kitchen and watching seven people all of a sudden fall silent. When he asked what he had done to trigger the silence, his friend finally admitted, "I just finished telling them, don't tell Ed, but I bought the bigger boat."
The flip side to having close relationships with clients, some advisors say, is that it makes it easier to communicate.
Roy Diliberto, founder and chairman of RTD Financial Advisors Inc. in Philadelphia and a proponent of the life-planning school of financial planning, believes there is nothing wrong in getting close with clients. He recalls a lunch meeting he had one day with a couple, longtime clients of his, who were dealing with an asset-rich, cash-poor situation, but were reluctant to sell their assets. During the course of the conversation, the talk became wide-ranging and intimate, with both Diliberto and the clients talking about personal issues.
Soon after, the husband called and said they were going to take Diliberto's advice and sell some of their assets. When Diliberto asked what finally convinced them, the client said, "That day at lunch you became a human being to us and not an advisor, and someone who should be listened to."
Diliberto equated the lunch to breaking down a barrier that brought the relationship to a new, and rewarding, level. "You can't force anything, but I do think if you are asking the right questions about people's lives, and they start sharing, you develop a bond with people as a result of that," he says.
In agreement is Neil Brown, an advisor who runs Burkett Financial Services in West Columbia, S.C. "It allows me to get more out of them," he says of close relationships with clients. "If I know they are planning on having two more kids, for example, I have a better view of their overall estate planning."
Most advisors have probably seen the commercials by now. The financial advisor leading a toast at his client's wedding. The financial advisor beaming outside the delivery room as his clients welcome a new child into the world.
There's also been the movement toward life planning, the school of thought that says an advisor needs to go beyond their clients' financial facts and find out their life goals to adequately serve their interests. The overriding message is that financial planning should not be viewed as a numbers game, but as a profession that is based on relationships, trust and planning. But how friendly should advisors get with clients, and what boundaries should an advisor set with clients who they see both professionally and socially?
Advisors are essentially on their own in answering that question. Unlike psychotherapy, for example, there are no strict ground rules for advisors when it comes to personal relationships with clients, meaning advisors are left to rely on their own instincts and judgments.
Some advisors admit they're still unsure about where exactly the line between friend and client should be drawn. Lisa Kirchenbauer, owner of Kirchenbauer Financial Management Consulting in Arlington, Va., has a lot of baby boomer clients who are younger and have a lot of life events. As a life planner, she also has an intimate relationship with clients in the planning room, with clients "sometimes sharing stuff with me they have never shared with anyone else, or one or two people."
Yet Kirchenbauer finds that she doesn't get invited to client weddings, bar mitzvahs or other celebrations, and has often wondered why that is the case. "Maybe the relationship is so intimate that they don't want me at an event; they want to keep me at arms length," she says. "At this point, for the most part, I've come to grips with the fact that my clients are not going to be my close friends."
In an ideal world, Holly Hunter, a life planner who owns Hunter Advisor in Portsmouth, N.H., would assign friends and relatives to a partner or another planner in her firm, or even a colleague at another firm.
But for the time being, she has no one else to rely on, so she services those clients herself. Out of 68 clients, eight are close friends and four are relatives. Hunter, in fact, just recently came home from a three-week vacation to Southeast Asia with three other women, one of whom is a client.
She says it's important to be open about concerns from the start. "You have to be honest about your feelings and concerns as a planner, and give them the opportunity to express any concerns or fears they might have at the beginning," she says.
Yet she admits that issues do arise and that she sometimes runs into situations that make her feel uncomfortable. A close friend of her husband recently visited with her about possibly becoming a client. Hunter worked out a proposal for the man but he never came back and hasn't spoken about it since. Adhering to a strict confidentiality policy, Hunter hasn't even told her husband about the meeting. But whenever they see the man socially she thinks about what happened. "It has not affected the friendship, but it does sometimes feel like there is an elephant in the room," she says.
She also wonders if there is any unspoken apprehension among her clients. On the Southeast Asia trip, for example, Hunter wondered if her friend had any qualms going on shopping trips with her financial planner. "Maybe she feels a little apprehensive that someone is looking over her shoulder in terms of her spending habits," Hunter says. Hunter herself felt a pang of guilt when her friend's husband, in a joking manner, asked who would be taking care of his money while they were away on the trip.
Family relations also have issues, she says. Hunter's mother, who became widowed last year, asked her daughter to take on her new companion as a client. Although she considered such an arrangement bizarre-"What happens if you guys break up?" she asked her mother-she agreed to do it as long as the companion understood "that he would be treated with the objectivity of any client."
Kevin Meehan, owner of CDHM Financial Advisors LLC, does financial planning for friends and relatives with the rule that business issues are not discussed socially. Even with the rule, Meehan finds that managing investments for a friend or relative is more difficult than providing financial planning. "It's most stressful and at times uncomfortable when their portfolios are going through difficult periods, as they were in the early 2000s," he says.
William Cuthbertson, owner of The Fiscalis Group and a member of the Alliance of Cambridge Advisors, is a life planner who has drawn a distinct line between his professional and private life. Cuthbertson equates the relationship between a planner and a client as similar to that of a psychotherapist and a patient, and feels that dual relationships can be harmful.
Cuthbertson, for example, feels that protecting a client's anonymity is essential, and would walk away if he sees a client at a grocery store or some other social setting. "I think it's wise to maintain that distance," he says.
He also feels that a planner can run into problems socializing with clients, and may run into "do as I say, not as I do" conflicts in social settings. "They may misunderstand my own personal behavior and see it as a different type of example than what I'm advising them to do," he says.
Edward W. Gjertsen II, vice president of Mack Investment Securities Inc. in Glenview, Ill., serves friends and relatives only after clearly stating up front that "no matter what happens, I'm not going to lose the friendship." Sticking to that rule, he once severed his professional relationship with his best friend from high school because his portfolio was underperforming the market. "I just took myself out of the picture so it wouldn't affect the friendship," he says.
Sometimes, he says, friendships just happen. Back in 1996, Gjertsen took on a retired dentist as a client. Over time, the man, who was 45 years older than Gjertsen, became one of his closest friends. "It was one of those situations where he was very nice as a client and I always loved to have him here," he says. "His outlook on life was just fabulous." When the client passed away in March, Gjertsen was one of his pallbearers. "I don't expect to have this kind of relationship with all my clients, but welcome those who share more than just numbers with me."