Your clients include adult children and their lone parent. Together they own a vacation property. The children want to earn rental income by posting the property on Airbnb, while the parent is vehemently against the idea because of potential wear and tear.
When you become aware of the conflict, how do you proceed?
Managing director, standards, Financial Planning Standards Council, Toronto
An advisor is obliged to put clients’ interests first—for clients individually, as well as for clients in joint relationships.
If the advisor can’t balance those interests, a conflict results that must be disclosed to clients (FPSC certificate holders must do so in writing).
Advisors often serve various family members in joint engagement, and when dynamics change between those clients, advisors might find themselves unable to serve everyone involved—a possibility that should be explained to clients at the beginning of any joint engagement. Advisors should also tell clients to inform them if disputes arise.
The best approach here is to get clients together and discuss whether the conflict between them can be mitigated. The advisor’s involvement in resolving the conflict would reflect services provided. For example, if the advisor knows the potential Airbnb income was part of the children’s financial plans, the advisor could address how to make up that income. For a potential resolution reflecting the property agreement, clients should be referred to legal counsel.
Business development manager for Western Canada, Croft Financial Group, Calgary
Many advisors might want to steer clear of attempting to resolve this situation. For example, for an advisor who sells products, the situation presents risk with no reward. In contrast, for a fee-for-service advisor who charges an hourly rate, the family is paying for a professional opinion, as it would a lawyer or accountant.
To offer an opinion, I’d discuss with the clients what they consider to be a reasonable decision-making process. Though not formally taught, most advisors intuitively assess how a couple or family makes decisions. That assessment should be non-judgmental, so that the advisor doesn’t impose a decision-making process on the clients but offers one based on observed family dynamics.
Such a process would ideally have been part of the property agreement. Clients can check with their lawyer to see if it is. If there’s no process, the family could consider how the property was acquired. Did the kids contribute financially or are they on title for estate planning purposes? If the latter, perhaps the parent’s opinion should be given greater weight.
The cautionary tale is to always have agreements in place in advance, just as businesses have universal shareholder agreements where clear rules of engagement are spelled out.
Rule 8.1 from FPSC’s Standards of Professional Responsibility outlines how CFPs must deal with conflicts between themselves and clients, as well as between clients. Clients must be notified in writing about the conflict and the CFP must obtain the client’s written consent before providing services.
Rule 9 says that, on an ongoing basis, timely disclosure should be made to clients, with timely defined as “as soon as practicable.”
IIROC’s Dealer Member Rule 42 says conflicts must be “reported immediately” to dealer members, and approved persons must address conflicts in “a fair, equitable and transparent manner, and consistent with the best interests of the client.” Unless removed, conflicts must be disclosed to clients prior to account opening or, for existing clients, as the conflict occurs. (For transactions, conflicts must be disclosed prior to the transaction.)
Similarly, MFDA Rule 2.1.4 says conflicts must be “immediately” disclosed to dealer members, and conflicts must be addressed by “responsible business judgment influenced only by the best interests of the client.”
Both IIROC and MFDA dealers must maintain written policies and procedures for disclosing conflicts.
Thanks to Rod Burylo and Damienne Lebrun-Reid for suggesting this scenario. To contribute your own ethical dilemmas or conduct quandaries, email Michelle Schriver at firstname.lastname@example.org.