Advisors: How to Get Yourself Fired

There is a lot of trust and responsibility involved in client relationships.  There is also a lot of money and the potential for making more.  We often consider clients as friends, which leads us to consider bending the rules.  Here are seven things advisors should absolutely not do:

1. Placing orders in a client’s account without their permission.  You might think they would really like to own this stock, but time is of the essence.  They might have told you in the past: “Just do whatever you think is right.”  The problem is the account is not discretionary unless a lot of paperwork is completed abnd approved.

Risk:  The client can say: “I never authorized that trade.  I am not responsible for the losses I sustained.  I want you to make me whole again.” You would have no documentation proving otherwise.

2. Signing a client’s name to documents.  This might sound like another time saver.  The problem is you are forging a document and it will live forever in your firm’s system.  Your client might have signed, but their spouse did not.  You signed in her place,

Risk:  If there ever is a dispute or a divorce, the client can say: “That is not my signature.”  Forgery is a crime.

3. Prefilling forms with made up information.  As an advisor, you might be tempted when a client needs to prequalify for a certain type of business.  Trading options might be a good example.  You pull numbers out of the air and ask a client to sign.

Risk:  The client can say they never provided that information.  They were not qualified to do that ,kind of business.  They should never have been approved.  They do not know where those numbers came from.

4. Taking instructions from a client to buy in another client’s account without a POA on file.  This might happen with IRA accounts.  The client likes your idea and asks you to buy the same in their spouse’s account. 

Risk:  They have no authorization to place that trade and neither do you.  The spouse can say they never placed that trade.

5. Saying you will guarantee a client against losses.  “Guarantee” is a word loaded with legal connotations.  As an advisor you cannot promise to “make them whole again.”  

Risk:  You are an agent of your firm.  When your client hears a promise, they may assume the firm stands behind it. They do not.

6. Trading on inside information.  You must be aware of changes in your client’s typical behavior.  The client who wants to sell everything and buy one stock is sending up a red flag.  Ditto the client with a guy who knows a guy.

Risk:  The regulators will investigate trading that took place before a merger or other big news story.  You risk being brought down with your client because after the fact, it looked so obvious they were trading on inside information.

7. Continuing to trade stocks after the client has died.  Your client’s account generated lots of commissions.  You have heard through the grapevine they just died.  You have not gotten a death certificate yet, so you pretended they called you and placed trades.  You traded in and out, generating commissions.

Risk:  You were placing trades the client could not have authorized.  Red flags will be raised.

As a financial advisor, you are held to a high standard.  Violating it can lead to very bad and immediate consequences. 

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