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Overcoming Bad Client Experiences

By Mike Patton

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I don’t usually go into a great deal of detail when I gain a new client because I need to be careful about disclosing specific facts which may compromise client confidentiality. With this in mind, I’d like to share an experience I had this week. I met with a new couple who have decided to engage me as their advisor. I am excited about this opportunity as they are very pleasant people who I’m sure I’ll enjoy working with. However, their last two advisor experiences have not been so good. The first advisor was unethical and the second was neglectful because he was too busy. The funny thing is, if this second advisor had known about their wealth, more than just the account he was managing, he may have found the time. In any event, they’re working with me now.

The story begins about 14 years ago with an experience they had with their first advisor. This advisor made some recommendations that were absolutely unethical. Even though there’s a degree of creativity present, the recommendations were completely inappropriate. The husband had an IRA and this particular advisor recommended that he convert it into an income stream and use the income to purchase a life insurance policy. So far so good, right? Well, here’s the problem. The husband was only 38 years old at the time! So at 38, he would be locked into IRC 72(t) and required to take distributions out for the longer of five years, or age 59 1/2 . Well, for him, it will be age 59 1/2 or, in other words, for the next 21 years! Oh, there’s something else. An audit was completed on this life insurance policy and it indicated that it would lapse at some point before his life expectancy. How much better off he would have been if he’d left the IRA alone and let it grow!

This is the type of behavior that needs to be eradicated. I don’t know if this advisor is still practicing or not. If he is, I feel sorry for any clients who may have the misfortune to place their trust in him. Unethical behavior hurts the client, the industry, and the honest advisors. No one wins when this occurs.

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