My client has money with me, refers clients to me, and quite frankly, is a great friend of mine. His wife has given me a million to invest for her. Only, she has kept this money separate from him; it was an inheritance from her mother. He keeps asking about the details.
I try to explain that I cannot discuss it with him, that she's the owner of the account and he's just the beneficiary. He doesn't understand, because he sent her my way and tells me to discuss anything with her that she wants on his accounts.
How do I convey that they are two different clients and I owe a degree of confidentiality to her without infuriating him so much that I lose him as a client?
Your question defines the space between a rock and a hard place. You already know that divulging information about your friend's wife's account violates firm rules, NASD rules, federal law and probably state law (depending where you work). Violate these at your own risk and stand ready to suffer the consequences if you do.
Just to keep your paranoia at a pitch, consider what is going on here. First, your friend and his wife live together and your friend can obviously get the information he wants by simply asking her directly. If he can't, it's probably because she does not want him to have it. Her monthly statements are mailed to the address where he also lives. He could pop open a statement at any time, read it and hand her the opened envelope. The fact that your client persists in asking for information he could get directly from his wife just reinforces the thought that something is not right. Whatever it is, you don't want any part of it.
So far, you have given your friend the right answer. Stick to it. That said, you have some alternatives to continued confrontations with your friend. I assume you have asked him to back off. I assume you have said that honoring his request could cost you your position (maybe) and even your career (though that's probably a stretch). I assume you have indicated disclosure would violate privacy laws, which can involve criminal and civil liability for you and your firm. If you have indicated these things to him, then rational explanations have not worked. So, the next time he brings it up, keep it light with a planned response of 10 words or less: Say, “Sorry Jack, I'm not going to jail for you this week,” and change the subject. Give the same response every time he brings it up. Hopefully, you will simply wear him out.
Another tack: Hide behind an edict from higher authority. Say, “Sorry Jack but I double checked with compliance and they said, ‘No.’ My hands are tied.” Or place the ball back in his court. Say “Jack, I checked with compliance and they gave me the go ahead if you can get her permission in writing.” This may lead to a frank discussion of why he can't get that permission from her. Once that is on the table, your problem may go away. In any event, I would not call the wife. You could step into a hornets' nest that could cost you both accounts.
You might also think about suggesting something that could, potentially, do both clients a favor. Even though their accounts are separately owned, tell them they that should view their portfolios as one unit — something that can only be done if each is aware of the other's holdings. Right now, you are the only one who knows whether their aggregate assets will allow them to achieve their articulated financial goals or whether the two separate portfolios really address their stated risk tolerances.
How much overlap is there in the portfolios? Is there a dangerous concentration or lack of diversification?
If they report on the same tax return, are they making intelligent decisions when taking profits and losses? Do their separate portfolios make sense from an estate-planning viewpoint?
Are there management cost savings, such as breakpoints, that could be achieved while they maintain separate account ownership?
If you bring these questions up, you may solve your problem and manage to help your clients solve theirs in the process.
Anthony V. Trogan
ANTHONY V. TROGAN LLC
West Bloomfield, Mich.
“Honesty” is not just a lonely word in a Billy Joel song. Practicing honesty may, in fact, offer the best possible defense in this particular case. Your question presents a far-too-common occurrence in the securities brokerage industry. Although serving the securities brokerage accounts of family members and close friends (and any referrals from them) is a lucrative business for many registered representatives, not surprisingly it can also leave them tangled up in family disputes.
This registered rep recognizes that he or she may not disclose confidential customer information to anyone outside the firm without the client's approval, or under very limited circumstances, such as at the request of regulators or pursuant to a court or administrative order.
Actually, a securities account owner may permit his advisor to speak to or do business in the account with a non-owner. The registered rep may even ask the securities account owner if he or she wishes to have another person designated as an additional contact person for the account. If the account owner agrees, the registered rep would have the account owner execute a power of attorney or letter of authorization providing for third party access to the account. The authority granted to the third party by the securities account owner may range from simple access to information about the status of the account to an ability to execute transactions in the account.
Here, the registered rep's concerns relate to a husband and wife who appear not to be communicating. The registered rep has gotten it right in this particular case — his professional loyalty lies with the wife. The registered rep may, however, ease the pressure he is receiving from the husband by suggesting that he, the rep, ask the wife whether she will grant her husband the ability to obtain information about, or even authority to execute transactions in, the account.
If the wife agrees, the registered rep can have her fill out the proper paperwork, and file it with his firm's compliance department. The husband and his registered rep friend will then be able to discuss his wife's account, along with the latest A-Rod controversy.
What happens if the wife refuses to permit her husband this access? Again, honesty is the best policy. You may then tell the husband that his wife would not allow access. (Duck while you do it.) This is not some glib or even naïve approach, but a straightforward, direct solution to a very troubling problem.
In sum, business from family members and friends can present rewarding opportunities, as well as anxiety, when inquiring minds begin to snoop. Registered reps should approach such situations in a direct, honest fashion to avoid problems.
Ernest E. Badway
Saiber Schlesinger Satz & Goldstein, LLC
New York, NY
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