This article appears in the February 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.
Your clients are a married couple, and you’ve always met with them together. They have joint accounts and are each other’s beneficiaries on their registered accounts. The wife, who is much younger than the husband, calls to tell you she has a substantial personal account that she’d like you to manage. How do you proceed?
Christine Van Cauwenberghe, vice-president of tax and estate planning with IG Wealth Management in Winnipeg
The most important thing to remember with joint engagement is that you have obligations to both parties. If one person asks you to do something privately, you must consider if it’s in the best interest of the other party or whether there’s a conflict.
While joint engagement includes some confidentiality for each party, in practice both parties are aware of their combined assets because the joint financial plan is reviewed at client meetings. If spouses don’t want to share information, it’s best they don’t enter into joint engagement.
In this scenario, you must remind the client about your obligations to both her and her spouse. To prevent misunderstandings before they occur, advisors should explain joint engagement when first meeting with clients, using sample scenarios: for example, explain that you can’t accept a confidential request by one spouse to remove the other spouse as the beneficiary of a TFSA.
You can also ask the wife why she wants a separate account. She may have misconceptions about whether certain assets are shared in the case of separation or divorce, and you may be able to allay her concerns. If the funds are from an inheritance kept in a separate account since before marriage, for example, they likely won’t be shared in a divorce.
If the wife remains firm that she wants to keep an account secret from her husband, you can represent only the husband, and the wife must find another advisor — which would likely alert the husband to her lack of disclosure.
Cindy Huang, portfolio manager with Leith Wheeler Investment Counsel in Vancouver
Portfolio managers have a fiduciary duty to act in a client’s best interest. As a fiduciary to both spouses, I would proceed with caution because there is a potential conflict of interest. To ascertain
whether a conflict exists, I would ask the wife about her investment objectives for these funds, the funds’ source, if she’s comfortable with her husband knowing about this account and if not, why. If this personal account comes with a secrecy obligation, I wouldn’t accept the account due to the unresolvable conflict.
A potential exception is an irrevocable trust* — perhaps with the wife’s children from a previous marriage as beneficiaries. In such a case, the wife gives up legal ownership of the assets.
Depending on what I learn from the wife, there may be reason to look more carefully into the couple’s joint accounts to ensure there’s no malfeasance — especially since the husband is much older.
I’d consider various factors, including when the last know-your-client form was completed and what the form says about the wife’s income sources; changes in the husband’s conduct, appearance or comprehension at the last meeting; whether the husband has a trusted contact person; changes to the couple’s account patterns, such as large withdrawals; and the potential for anti-money laundering issues.
If I suspected a conflict of interest, I would address my concerns with my compliance department.
To contribute your own ethical dilemmas or conduct quandaries, please email Michelle Schriver.
*The original version of this phrase was edited for clarity. Return to the edited sentence.