A wealthy client tells you she’s asked her lawyer to leave a large bequest in her will to her new boyfriend.
A widow is paying her son’s credit card bill, again. “Well, I don’t want him to get in trouble,” she tells you.
An imbalance of money and power: it’s a dangerously attractive combination for financial predators, who worm their ways into the lives of their victims in an effort to tip the scales to their favour. And it’s a situation that can lead to undue influence, where the abuser pressures or coerces the victim into making financial decisions he wouldn’t otherwise make.
“A child who consistently has financial difficulty is the most common scenario,” says Teresa Black Hughes, advisor at Rogers Group Financial in Vancouver. Picture an adult child, perhaps between jobs or who has recently divorced, who moves in with a parent to “get back on his feet.” He starts cooking, cleaning or driving for the parent, who becomes increasingly reliant on him.
“The child begins to believe he’s entitled to payment for the services—that the money is his anyway,” says Peter Wouters, director of tax retirement and estate planning services, wealth, at Empire Life in Burlington, Ont. “And he begins pressuring the parent for money, or to make accounts and assets joint.”
Legally, undue influence on a will and other gifts effective at death must extend beyond simple suggestion to coercion, threats or intimidation at a very high level. “It might be, ‘If you don’t sign, I’ll beat you, or I’ll put you in a home, or you’ll never see your [children or] grandchild again or I won’t give you your pain medication,’ ” explains Winnipeg- and Calgary-based estate lawyer John Poyser. “Persuasion is permissible under the law, but force is not.”
But a situation doesn’t have to meet the legal definition of undue influence for it to be detrimental to a client, or for an advisor to express concern. “There can be a grey area of inappropriate influence or undue pressure, where an advisor can step in to help,” says Hughes.
Financial victimization often comes with telltale signs (see “Signs of undue influence”). If you suspect that a client is being unduly influenced, it’s important to enlist help from your compliance department and ask questions about the situation.
Here are eight strategies to protect both your clients and yourself from financial predators.
1. Know your clients
When your client has a documented financial plan that’s been stress-tested and regularly reviewed, it’s much easier to spot deviations from that plan. Hughes, for example, creates an estate map with each client and reviews it annually. If a client proposes diverging from the plan, “I ask openly: ‘What are you planning to do with that money? Why?’ I tell them, ‘My job is to be your advocate. And in order to do my job, I need to know everything that’s going on.’ ”
2. Increase communication
Meet with clients directly and frequently, advises Wouters, a registered financial gerontologist. While there’s no cut-and-dry standard on how often, he says, quarterly meetings are in order, supplemented by additional meetings to address specific financial events, like a request for a change to a portfolio, beneficiary or plan. Conduct as many transactions as possible in person. And observe your client when you’re with him: does he wear the same thing to every meeting? Are his clothes clean? Does he appear withdrawn or frightened? “Suggest private meetings with your client only. The more resistance a potential influencer has to private meetings, the bigger the red flag,” notes Wouters.
Try setting up calls during a time when the client is alone and free to talk—perhaps at work or at home. Consider establishing a policy, explained to clients in advance, that stipulates you will, at times, mandate that you speak to them privately.
A lawyer’s process
Estate lawyer John Poyser says a lawyer who’s drafting a will for a client but sees signs of undue influence is obliged to conduct client interviews far away from the suspected influencer, and to ask “the bluntest, most direct questions possible to try to test for undue influence: Why are you doing this? Whose idea is this? What will happen to you if you don’t do this? Have you been threatened with anything?” And while the questions may be awkward, not asking them is worse: “I tell the client, ‘If I don’t ask you these questions, then the document in question will be set aside as invalid.’ ”
Poyser has, on occasion, offered clients the option of a secret codicil or second will that reverses the terms of a will that has been unduly influenced. That way, his client can show the influencer a document that seems to meet his demands, while privately maintaining the client’s true wishes.
Whether or not the client takes him up the offer—to date, none have—it’s part of a detailed process to ensure that the will is a true reflection of the client’s wishes, and that the client remains free from attack. That process includes a detailed (and transcribed) interview, with a broader than usual range of questions, conducted in the absence of any potential influencers.
If a potential abuser balks at the idea of being disincluded, Poyser explains that being there could work against that person’s goals. “I’ll say, ‘If you were to participate in this process, which benefits you, we would end up with a document that is inherently flawed and won’t be worth the paper it’s written on. You don’t want that, do you?’ ”
3. Paint a clear picture
Create and document a clear, visual before-and-after scenario for him that spells out the implications of a questionable transaction. Show what a client has now and what he’ll have after, say, the transfer ownership of his house to his niece. Ask what-if questions: What if your nephew doesn’t make payments on the loan? What if you live to be 100? What if you can’t afford rent or groceries? What if you become sick and need long-term care? Then, ask your client to explain the implications back to you in his own words.
4. Meet with the potential influencer
If you suspect undue or inappropriate influence, it can be effective to put the potential influencer in the hot seat.
Hughes recalls a case when two adult children were pressuring their mother to sell her home, move into a care facility and give them the money. “I sat down with the three of them, ran through the numbers and the different scenarios, and said to the kids, ‘It is very, very important that your mother be financially sustainable all by herself. If you siphon off this money now, and Mom doesn’t have enough, what can convince her that you will indeed return the money to her to take care of her?’ I wanted them to have that conversation in the presence of a third party.” In the end, says Hughes, “the kids toned it down a bit. We managed to put the brakes on the transaction and reduce the amount of money going immediately to the children.”
5. Document discussions
Write down the details of every phone call and meeting, urges Wouters. Who was present? What was discussed? What decisions were made? What was your client’s demeanour? Did he understand or care to understand the nature and implications of the decision made?
6. Get help
If you suspect potentially predatory behaviour, don’t go it alone. Consult in-house legal counsel, a compliance officer or a supervisor. While maintaining confidentiality, encourage your client to consult an independent lawyer, or discuss the situation with other family members and friends. “The predator will be trying to isolate the client from good advice and sober second thought,” says Poyser. “The advisor can try to counteract that.”
Is there a point at which you should call police? “It’s a grey area,” says Wouters, who suggests erring on the side of caution. If you’ve carefully documented your history of dealings with the client, noted a pattern of behaviours or circumstances that strongly suggest undue influence, gone through the escalation process and you’re still questioning whether to go to the authorities, “then you’ve probably already answered the question. Let the authorities do their job from [that] point on.”
7. Say “no”
If you’ve taken every step you can and you still feel strongly that your client is being unduly influenced, don’t be afraid to balk.
“Advisors need not compromise their ethics, standards or professionalism,” says Wouters. “They are protecting these things when they say, ‘no.’ ”
It’s better to refuse to proceed than have a client victimized under your watch, adds Poyser. “A refusal by an advisor is a powerful wake-up call for a client about to make a mistake.” Not only is that victimization bad for business and bad for the soul, he notes, but it also creates the spectre of legal liability, particularly if the advisor is characterized as a fiduciary.
8. Get an indemnity clause
Make it clear the transaction went forward against your advice and that they won’t hold you liable for its consequences, says Wouters.
Even with the best counter-advice in the world, a client may decide to go ahead with a questionable financial decision.
And while that may be unfortunate, it’s also the client’s right. They’re allowed to be generous, says Poyser, and engage in transactions that may impoverish them.
Signs of undue influence
Changes in financial plans
Radical shifts in the terms of a will or financial plan (e.g., suddenly leaving everything to one child instead of all three children); changes to a PoA document or a beneficiary on an insurance policy; individual accounts or property being made joint, with the new joint holder being given authority to make financial decisions.
Unprecedented, large withdrawals; an increase in ATM withdrawals; transactions that don’t fit the client’s risk profile or don’t take into account tax implications; cheques written out of order; a new credit card in the client’s name with a subsidiary card to the potential influencer.
All of a sudden, your client is busy when you call; someone else always answers the phone; a mailing address has changed, even though the client hasn’t moved.
A threatening presence
The potential influencer accompanies the client to all meetings, discourages private meetings or tries to dominate meetings.
Changes in appearance or demeanour
A client seems to cower in the presence of the potential influencer; he’s more withdrawn or wears the same outfit to each meeting; he seems physically frail, in pain or unhappy; he makes little or no attempt to give feedback or demonstrate understanding of the implications of financial decisions.
Secrecy and vagueness
A normally open client is evasive about why he’s doing what he’s doing; a client or a potential influencer suggests, “Let’s not tell my brother/his children about this”; documentation is missing, vague, late or conflicting.
by Susan Goldberg, a financial journalist based in Thunder Bay, Ont.