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You are busy enough comforting clients through volatile markets; the last thing you need on your mind is a lawsuit. But this type of market causes client complaints to jump. How can you protect yourself?

Know the archetypes

No surprise, advisors wouldn’t talk on the record about this topic. According to several we spoke with, there are five client archetypes that have the potential to become litigious.

HEADSTRONG HARRY: DANGER LEVEL 7/10

Harry knows exactly what he wants to buy. He’s done tons of research and knows the markets. You can’t pin him down on risk tolerance and objectives because he knows they’ll shift over time. He’s looking in part for an order-taker but also secretly wants an investing partner. He’ll look to buy the hottest products but delegate responsibility for their performance, and if the investments he insists on go south, your phone rings.

Protect yourself: This client needs constant communication and detailed documentation of every transaction. He wants a call the moment the market hiccups. He’s watching you, but can be a great client if you’re on your game.

GIC GLORIA: DANGER LEVEL: 5/10

Gloria’s only investments are GICs. But today’s low rates mean she won’t be retiring at 55. She’s looking for higher yield, so you put her in conservative mutual funds. The first time Gloria’s funds go down, she complains. She’s not comfortable with the way mutual funds follow market trends, and insists on going back to GICs.

Protect yourself: This client is not likely to go to the formal complaint process and it can be a good test of an advisor’s skills at explaining how equity markets work. Or you can simply put Gloria back into GICs and make it clear that her investing time horizon will be long. Explain the concept of risk versus reward, but realize some people just can’t tolerate risk. Delve deep during the KYC process and find out about past investment history. Maybe the client lost a significant sum to a bad investment.

SERIAL SALLY: DANGER LEVEL 8/10

Fresh from leaving her previous advisor, Sally complains to you about how he didn’t listen. Further discussion reveals she’s had four advisors in the last three years. It could be all four were bad fits, but you sense that may not be the case.

Protect yourself: A serial client can be toxic to your business and your sanity.
Advisors can’t warn each other about a Serial Sally without risking a privacy violation, so caveat
emptor when taking on new clients. Ask lots of questions and find out exactly why Sally left her previous advisors.

TOO-SMART TIM: DANGER LEVEL 10/10

Tim targets rookie advisors. He opens a new account, and pre-sents himself as a low- or no-risk client. He’ll behave that way for awhile, then suddenly announce he’s flush with cash and wants to start making very speculative trades.

The sizable commission is tempting, but Tim will tell you he can’t sign off on a risk-profile update because he’s trapped at his cottage. Against your better judgment, you do the trade. Tim loses big, and tells your firm, “I shouldn’t have been allowed to buy that security. My account is coded as low risk. Your advisor should have rejected my trade.”

Tim’s brother, Jim, has even more insidious methods. He’ll open a new account with a bogus certified cheque and do a bunch of aggressive trades right away. The trades lose a ton of money, leaving the firm (and you) holding the bag.

Protect yourself: Reject all trades until risk-tolerance documentation is on target, no matter how appealing the commission. Tim knows how suitability is reported on the new account application form and is ready to game the system. If you meet Jim, make sure his certified cheque actually clears before executing any orders.

INNOCENT IRENE: DANGER LEVEL 3/10

Irene’s a longtime client who’s invested in only preferred shares and Canadian bonds. She tells you today she wants to invest in a junior mining stock.

She insists, even though you bring up her investment history. Further questioning reveals she’s in the process of being swindled by a friend, family member or colleague and is looking for a way to make a lot of money in a hurry.

Protect yourself: If you can spot it, you can stop it. Be aware of your clients’ investing patterns and make sure you ask questions when they change dramatically. Find out why they’re interested in the investment, and how much they expect to make. If they can’t explain it to you, advise against it.

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