Dealing with dishonest clients is a balancing act, Lapin says.

Against a backdrop, in the current American political discourse, that features nonstop accusations of lying, faking and prevaricating, why not take a few minutes to learn how to handle dishonesty: a client’s, a colleague’s, your firm’s. Raphael Lapin, a Harvard Law School-trained negotiation and mediation specialist, tells how, in an interview with ThinkAdvisor.

(Related: Top Negotiator Offers Tips for Dealing With Clients)

To confront a deception or to look away — that dilemma can be vexing indeed, especially without a few principles as a guide. On one side is the issue, for example, of putting the client relationship or your employment at risk. On the other, is your being exploited by the dishonesty, which can be costly both materially and psychologically.

Dealing with falsehoods is a sensitive area that requires the right approach, says the communication expert, founder of Lapin Negotiation Services, a consulting, training and executive coaching firm that also specializes in litigation avoidance.

Fortune 500 and international government clients include AT&T, Booz Allen Hamilton, Northrop Grumman and the U.S. State Department.

In the interview, Lapin discusses whether or not to fire a client who has lied to you and what to do should you discover that your firm is exploiting clients financially, among other touchy situations. For FAs whose client rosters focus on couples or groups, Lapin recommends dispute-resolution training as a way to mediate conflicts effectively.

ThinkAdvisor recently interviewed Los Angeles-based Lapin by phone — a conversation that revealed a hobby of his in common with film stars Harrison Ford and John Travolta. A former rabbi, Lapin is a member of the L.A. Superior Court Dispute Resolution Panel and author of “Working with Difficult People” (DK Penguin 2009). Here are excerpts from our conversation:

THINKADVISOR: If a client has lied to their financial advisor, should the FA turn the other cheek?

RAPHAEL LAPIN: You can’t have one-way trust. An advisor has to understand that as a confidante, the relationship with the client is an intimate one because they’re intimately familiar with what’s happening with their finances. There has to be a basis of trust. If there’s no trust, the relationship can’t flourish.

What should an advisor consider when a client has been dishonest with them?

On the one hand, you don’t want to confront them and offend them in a way that would mean losing the relationship. But on the other, you don’t want to be taken advantage of and exploited because of their dishonesty. If you confront them and accuse them of lying, you risk the relationship. If you don’t confront them, you risk being exploited.

Suppose a client tells an FA that he has $5 million to invest, and the advisor recommends an appropriate strategy. But half that money turns out to be in his wife’s name. When the couple meets with the advisor, she says she’s unwilling to invest her half. What should the FA do?

The advisor should assume the role of mediator and work to uncover the wife’s true concerns and her financial goals. Often, once [the opposing party’s] concerns are heard, acknowledged and validated, of their own volition they’ll agree to the original plan.

What if, in this case, the wife does not?

The advisor should work with the couple to find a solution that works for both of them; for example, perhaps only investing the husband’s funds for now or [using] a different investment strategy for the wife. Since misunderstandings of this nature aren’t uncommon with married couples, I wouldn’t confront the client unless [there’s] a pattern of deception.

What if, in another scenario, the client has lied and the FA wants to fire them because of it?

The advisor could say, “This has happened, and it makes me very uneasy because I feel that I’ve been treated dishonestly. That’s not the kind of relationship I feel comfortable with, and I can’t work with you under these conditions.”

What if the advisor feels strongly about keeping the client even though he’s been lied to?

Try to re-establish trust and say, “This has happened, and it made me feel deceived. I’d like to speak with you about how we might best define our relationship in the future.”

Suppose an FA finds out that his firm is doing something dishonest that’s victimizing clients. The Wells Fargo scandal comes to mind.

An excellent example. This is a legal area, and you certainly don’t want to be a party to anything illegal. So I advise going to your superior.

Telling them what?

It has to be done in a way that creates the least defensiveness. So rather than say, “I think you guys are dishonest and what you’re doing is illegal,” say, “I’m uncomfortable with things that are going on here. I’m sure you have your justifications, but what ideas might you have as to how I can continue to contribute to the company without being a party to what’s going on?”

In that same situation, should you immediately approach the media instead so they can break the news?

I find that a little sneaky. And I don’t see much purpose in it. It doesn’t help get your needs met. But you can use that [tack] as leverage in negotiating. You might say, “I’m sure we can work this out to our mutual satisfaction. I don’t want to be forced into a situation where I’ve got to go to the press.”

If an advisor finds out that a superior has been dishonest in giving him critical information, what should they do?

If the advisor is being dealt with dishonestly and being fed information on which he’s expected to base a decision, he needs to speak with that individual about it. But he should never accuse them of lying because that creates defensiveness, which is going to stop any further discussions and productive dialogue.

What should the advisor say?

Instead of, “I don’t trust you,” say, “The way I do business is that I need to independently validate any information that’s been given to me upon which I have to base a decision. What ideas do you have of how I might validate the information you’ve given me?”

A financial advisor who heads a team finds out that a member of his group has lied. How should he deal with it?

If it’s not a legal problem, you need to first understand to what extent [the lie] would impact your work, your performance and your accountability. Then decide: Do I need this person? Is he important to the company? Do I want to continue a relationship with him? Is keeping him better versus the cost of letting him go?

And what if the answer to each of those questions is no?

Then you should think very seriously about letting them go and telling them, “Look, this isn’t working.”

But what if the situation is only that an employee failed to meet a deadline, and they claim the deadline was actually a week later?

You can afford to give them the benefit of the doubt because you’re not sure if it was a misunderstanding or blatant dishonesty. However, this should raise a red flag to keep a vigilant eye out for a pattern of dishonesty.

What if the same employee lies again?

If you need to continue the relationship, you have to confront the dishonesty: “I gave you the benefit of the doubt the first time, but this happened again. There seems to be a pattern here, and I’m uncomfortable feeling deceived and treated with dishonesty. I’d like to get some ideas from you on how we might continue our relationship in a way that my confidence can be re-established.”

What else is important in approaching the person?

You need to allow them to save face because if you don’t, it makes the continuance of the relationship very hard. So you need to negotiate with him in a way that you both can feel comfortable, trust can be reestablished and the relationship can be rebuilt.

What should you do if you know that an advisor in your office did something dishonest, but you have no authority over them?

If it’s a legal issue, it gets into whistle blowing. If it’s not a legal issue, such as a colleague amplifying benefits of a financial product to a client and not being completely accurate, which doesn’t impact you directly, then you can certainly afford to ignore it.

But suppose you believe that isn’t the right thing to do?

You can go higher up [the executive ladder] and say, “This is something I’ve observed, and you may want to look into it.”

When is whistle blowing the best option?

That gets into a question of morals and ethics, such as if an advisor sees something that involves stealing from clients. If he’s going to [blow the whistle], he needs to make sure he’s covering himself legally and that he’s established that [the act] is going on.

How can FAs cover themselves, then?

Many firms have policies that include protection clauses — required for compliance reasons — that address this issue and state that the firm has no right to take [exposing someone] out on you. But I would certainly consult with legal counsel as to what should be done.

You’ve written that a decision-making process used in aviation — which you know about since you’re a licensed pilot — can help in coping with sensitive issues such as dishonesty. Please discuss.

“DECIDE” is the acronym for this process:

“D”: Decide that there’s an issue to be addressed.

“E”: Estimate the need to react. That is, what happens if you don’t react, and what are the costs and benefits if you deal with it?

“C”: Choose a desirable outcome. Do you want to continue working with the person in the future in a way that you can trust each other [or else, disengage]?

“I”: Identify the action that should be taken. 

“D”: Do the necessary action.

“E”: Evaluate the results. Is what you decided to do working?

How long have you been flying planes?

I started two days before the 9/11 attacks, in California. The week afterward, the FBI came to my flight school and took away all the student files so they could go through them. For three weeks, all general aviation was grounded.

Were you frightened to pilot an airplane again?

The attacks gave me more impetus because I felt it was safer to fly a plane myself.

What did your flight instructor say after the attacks?

He told me how to set the transponder [transmits information to Air Traffic Control] if I were being hijacked so that Air Traffic Control knows what’s going on. I said, “Why do I need to know that? I’m not flying commercially.”

And he replied…

“What happens if you’re walking to your plane and suddenly some guy sticks a gun in your back and says, ‘Fly me to such-and-such place’?” So they were concerned that we had to learn the transponder setting for a hijack: 7700.

— Related on ThinkAdvisor: