Our Moral Obligation to Save Clients from Themselves

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Properly managing a client’s assets may not be enough to secure their financial wellness. Here are three cases where I took extraordinary measures to stop unrealistic and destructive spending.

Almost 20 years ago, against my advice a client sued her former investment manager. She had lost money in a bear market, but the case turned on the fact that the manager had not warned her about the consequences of making outsized withdrawals, chasing her account value down very quickly as the bear market proceeded. Even in a neutral market, her withdrawals would have caused her trouble at some point, which I told her lawyer might be relevant to the case.

I was called to testify. During my testimony I was asked to show where, in the Chartered Financial Analyst’s Code of Ethics, it said that charterholders should warn a client about overspending. Of course, there was no such wording.

My client lost her case.

Some years later, prospective clients I had once turned down showed up in my office. This couple had originally come to see me with about $1.1 million in an IRA. The plan was to live off this money for their entire retirement. This was looking promising, until he informed me that he needed at least $110,000 per year from the account. I politely told him I could not manage the account with any success under those circumstances. He then hired the same manager who was sued by the first client.

Here he was in my office with an account value in the $400,000 area. At that level, the manager had told him that his fee would rise and he should seek another manager. I asked him if he had ever had a discussion about spending and he replied, “No.” But he promised up one side and down the other that he would keep within a budget.