Editor's note: This article is part of a Financial Advisor series "How I Solved It." Advisors describe a problem client and what they did to help.
When a long-time client's sister wanted financial advice, Kimberly Foss might have hesitated. "The sister really didn’t fit my usual client profile, especially in terms of minimum investment funds available," recalls Foss, a certified financial planner and founder and president of Empyrion Wealth Management in Roseville, Calif., outside Sacramento.
The sister, a retired nurse, was concerned about her IRA. "Because she had been referred to me by a solid client who had been with me for a number of years, I agreed to meet with her and take a look at the IRA account statements to see if I could offer any solutions," says Foss.
The ex-nurse had been taking modest withdrawals for living expenses, yet somehow, over the preceding seven years, her account balance had dwindled from just over $1 million to roughly $500,000. And the unexplained hemorrhaging of cash may have been worsening. Some $150,000 had evaporated over a recent six-month period.
She had confronted her advisor, she explained, but received only "vague assurances that she was 'being well taken care of'—even as the losses continued to mount," Foss recounts, adding that much of this had occurred during a mostly up market.
Foss agreed to intervene. She examined the account statements. She discovered that the other advisor was decimating the account through high risk investments. "I realized to my horror that the other advisor, who had discretionary trading authority in the IRA account, was writing put options on oil stocks for this generally risk-averse retired nurse. Then, when the options were exercised, the account was required to purchase the stock," she says. "Compounding the problem, when oil stocks went through a period of struggle in 2014, the account value took a major beating."
This strategy was far from a good fit for the woman's objectives. The other advisor had explained his plan in broad, general terms, but the client clearly "didn't understand it at all," says Foss. "It was also clear that something needed to change in a hurry."
So Foss advised her to immediately revoke the advisor's discretionary trading authority. "I also advised her to put this demand in writing," she stresses.
But that wasn't enough. She suggested the woman and her brother -- Foss' original client --confront the advisor and request a refund of her losses. After all, he'd failed to manage the account in accordance with his client's risk tolerance and investment objectives.
It wasn't easy. Threats were made to bring in securities regulators. In the end, however, a degree of justice prevailed. "The adviser agreed to refund about $80,000," says Foss. "[That was] much less than the amount lost in the account, [but] the sister decided this was better than nothing, especially since she felt she didn’t want to spend more time and emotional wear-and-tear on the situation. She closed the account with the other advisor."