Advisor responsibility

what is the responsibility of an advisor to their older client that is income dependent from their investments? Would it be out of question to be upset if an advisor lost 50% of a clients portfolio that is age 78 and she relies on the investment to supplement their social security income?

This is a general question and I cannot supply specifics on the situation.

I realize if the client tells the advisor she does not want to move assets to less aggressive funds it cannot be the advisors fault but if the client relies on the advisor to advise her on what to do.......

When placing a client's assets in an investment class, the client's risk profile is carefully documented, calculated and classified in a risk category and signed by the client. This industry standard written profile is then kept in the records pertaining to specific invesments and dictates how much of any given portfolio can be allocated to high risk, moderate risk, etc. If the advisors places too many assets in a risk catergory that defies the risk profile, the client can hold the advisor liable.

If the client wishes to ignore the calculated profile, written permission to invest otherwise must (and will) be obtained by the advisor for their own protection.

You'll find that EVERYTHING in the financial industry is in writing and if something goes wrong, the documentation will be requested and must be provided to further any investigation.

Wow, that's very sad. But yeah, unless it's in writing otherwise, I imagine the elderly client has little or no recourse.

This scenario is exactly why so many of us on the boards really push hard for people to become self-educated, and not RELY on a financial advisor. Getting ADVICE is one thing -- as in, "let me tell you about this great thing" -- but it's up to the individual to educate him or herself enough to say "no, that's not right for me" or "yes, that would be perfect for my situation".

Puck, I agree completely but I think self educating at 78 especially for a women at that age isn't realistic. I don't think you were suggested that so I'm not trying to make a big deal of it.

So her first course of action would be to ask why she was investing in this way and also maybe ask for the risk profile that she signed if the advisor suggests she was the one that wanted him to allocate funds like they were???

Thanks.

Shame on the advisor for putting that client's assets at enough risk to lose 50%, whether she is 78, 68, or even 58 years old.

100% invested in semiconductors in January 2001 would have recovered more than that by now. Not to be cruel, but that must have been one ugly portfolio. :mad:

I held a healthy amount of Gateway computer stock!!! So to be honest the portfolio might be more than 50% down.

But, in that case the portfolio would have enough Gateway stock to be undiversified. The advisor should have caught that. If an employee receives stock options over a course of time, that should be taken into account, whether a portion of those stock options are exercised, or enough outside funds are used to offset those options.

Not -- No, I'm speaking in a general way. And the case of the 78 year old woman points out why it's doubly important why women should educate themselves, and not rely on a man to make all the decisions. Because the statistics show us again and again that we women will spend many years without our spouses, and we will have to make the decisions ourselves.

I think it's no coincidence that there are only two or three women on this board. Even in this day and age, too many women leave it up to their men to make the financial decisions. It's a recipe for disaster.

Again, I'm speaking generally. Of course a woman of her generation would have been more likely to let her husband call the shots. But it's still an object lesson for the rest of us women.

It's a shame this woman didn't have family or friends who could keep an eye on this advisor. My mother is about that age and my Dad (who's as avid about investing as I am) has told me he'd like me to oversee the management of the investments if he's not around. I was particularly pleased with this since one brother is a CPA (but a tax wizard, with tunnel vision when it comes to anything but tax implications) and another is the CFO of a medium-sized company (but not that interested in investments). The money is being managed by an advisor and, while Mom is just as smart as the rest of us, she'd probably put it all in CDs if it were up to her so she wouldn't have to worry about it.

But, to go back to the original question, on the face of it, I'd say the advisor mishandled the account. Any portfolio that decreased 50% (over what period of time?) probably is too aggressive for a 78-year old unless it's got a multi-milion dollar balance and the client understood exactly how aggressive the portfolio was.

Notinthebiz,

I think your 78-year-old might have some legal recourse here.

Price, it's likely that there is documentation of her risk tolerance, but all that "in writing" stuff is not necessarily true for older accounts. In addition, just because a client signs some stuff doesn't get the advisor out of the woods if the client doesn't fully understand the risks. I've heard of plenty of advisors who's clients took them to arbitration and were awarded a healthy settlement for reasons as simple as "it wasn't explained clearly enough."

So I think it's worth a shot. It is probably going to depend a lot on the portfolio, and how meticulous the advisor was with his/her records. It might be in a long-term bond portfolio that got downgraded heavily (like GMAC) and is now worth half what it was a few years ago. That might have been appropriate for a fixed-income seeker at the time, but still there is the duty of the advisor to regularly review these accounts and make sure that everything is still appropriate.

Puck, it is good to be self-educated, but it's downright wrong to assume you'd be better off if you learn on your own. Maybe this woman was unlucky, but rest assured, most people are FAR better off getting advice from a professional, rather than braving retirement on their own. If you're all about empowering women, get a female advisor. Half of our time with clients is spent educating them, by the way. It's usually a much more efficient use of your time than reading a book or attending a seminar.

I've heard of plenty of advisors who's clients took them to arbitration and were awarded a healthy settlement ...

are these camp fire stories of boogey-men (for puck: or boogey-women) or is this something you have heard first hand from colleagues or managers?

if the latter, where the heck do you work and get outta there FAST!!!

Puck, it is good to be self-educated, but it's downright wrong to assume you'd be better off if you learn on your own.

I think many here have wildly varied definitions of "educate". I was using it in the sense that someone has to learn enough to know when someone is offering a product or service that isn't right for them, and especially to know when a person is actively trying to rob you blind, or is putting you in a situation that is wrong for you, as is the case in the OP's question. I think for most lay-people who are not in financial service businesses, it would be impractical to know all the ins and outs of all the investment opportunities available (plus the tax implications, etc) -- in fact, I'll bet all you financial professionals even have continuing education requirements in order to maintain your license/certification, meaning even professionals don't know all there is to know! But I think it's important for everyone to educate themselves enough, to know what products/services offered by a professional or offered in an email, or recommended in a magazine, are right for them -- their income, their goals, their situation, etc. No stranger, no matter how well paid, no matter how thorough in talking with the client, can ever see all the permutations of your own situation as YOU can.

1 mo...First hand from a colleague, unfortunately. So I guess that makes it second hand. It is a good campfire story, but I'm short on time. If you want to hear it, let me know. Oh, and it was at Citi. And I'm not there anymore, but not for that reason. It doesn't matter where you are, stuff happens. C.Y.A.

Puck, fair enough. But I can't go with you on that last statement about seeing all the permutations in their own situation better than a professional. All self-education aside, we will think of questions that they simply will not know to ask. We will dig deeper, and deeper, and they will know themselves better than they did before they walked in.