Mixing business and personal relationships is verboten if you want to preserve a friendship—yet many advisors ignore this rule.
Such behaviour flies in the face of standards observed in other professions like medicine or psychotherapy, which discourage providing services to family or friends. The College of Physicians and Surgeons of Ontario, for instance, reasons the quality of the physician-patient relationship can be compromised when a friendship develops.
For advisors, it’s different. “Ultimately, it is a personal choice,” says Leona Tranter, standards enforcement director, Financial Planning Standards Council. “What’s important is that the CFP professional adhere to our standards and ethical principles, regardless of whether the client is a friend.”
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It can be tricky. “Some clients are less able to compartmentalize than others,” she says. “They may be tempted to talk shop at a family function. It is important to articulate the rules of engagement up front.”
PROS AND CONS
Before Barrie, Ont.-based advisor Danielle Park co-founded her own wealth management firm, she worked for a sell-side institution that had revenue targets to hit. “I was leery about recommending products to friends,” she recalls. “Now that I work on a fee-only basis for clients, not a sales firm, there are no conflicts of interest, and I have no problem advising family and friends.”
Mike Himmelman, an advisor with Citadel Securities in Halifax, notes new advisors often cut their teeth on familiar faces. Over the years, he’s found it easier to deal with people he already knows well.
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“I already have some idea if my friend’s 18-year-old son is planning to study abroad or apprentice at the local body shop, so I can ask more relevant questions.” But things don’t always come up roses. “If [friends] lose money, it’s invariably my fault,” he says ruefully. “I find that a little stressful.”
Winnipeg advisor Doug Buss recalls some friends felt torn about staying on as clients after his marriage broke up. They moved to other advisors.
So what happens if a loved one wants both advice and huge returns?
Acknowledge the dual nature of the relationship, says Buss. “I tell friends I have to ask personal questions to do the best possible job,” he says. If the friend balks at such disclosures, Buss doesn’t do business with them.
By the same token, Sherry Cavallin, a planner with Assante Wealth Management in Vancouver, says she won’t make a client out of a friend whose investment personality is markedly different from her own.
“If she’s the type of person who wants to time the market, I’ll decline the work.” Once she’s agreed to provide her services, “it comes down to setting expectations so the friend won’t call me up in a panic every time the market has a hiccup,” she says.
It’s also important to think twice about making light of a financial situation. In what might seem like a harmless prank, but could actually constitute a major compliance breach, an Ontario-based advisor made a phony balance sheet for a friend, stating he’d be turning a $20,000 profit on a stock, but shelling out $35,000 in commissions. Had his friend complained, he could have been charged with falsifying client rec-ords. Wisely, that advisor’s steered clear of such pranks ever since, regardless of whether the client is or isn’t a personal friend.
It’s a safe bet Earl Jones’s relatives don’t feel warm and fuzzy about the man who swindled them out of their life savings with his infamous $50 million Ponzi scheme. “You can rot in hell,” Jones’s own brother yelled out in a Montreal courtroom.
Among honest financial planners, however, such ruptured relationships appear to be rare—even if a client’s bottom line goes south. “It never came close to happening to me,” says Pickering, Ont. portfolio manager John Hood, adding he’s only seen one friendship dissolve in this manner. “I have a friend whose financial advisor, also a good friend, invested his money in shaky stocks that went nowhere,” he says. “They’re no longer on speaking terms.”
Gabrielle Bauer, a Toronto freelance writer specializing in health, finance and social issues, and the author of two books.