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Safeguard Yourself Against Litigation

When unhappy clients lose money and decide to sue somebody, chances are that somebody is you.

“You don’t have to have done something wrong to get sued,” Greg Severinghaus, marketing manager and senior underwriter of Markel Cambridge Alliance, said in a breakfast session April 25 at FPA Retreat at Chateau Elan in Georgia.

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Greg Severinghaus of Markel Cambridge Alliance presented the session, “Improve Client Relations to Limit Litigation” at FPA Retreat 2017.

Severinghaus said many advisers he works with don’t think they could ever get sued. They tell him they’ve got good client agreements and they get good results. But then they get sued for something frivolous or something that wasn’t their fault.

For example, he said, an adviser he worked with interviewed with a married couple who never even signed on as clients who eventually sued him.

“We spent $50,000 defending him,” Severinghaus explained. That was a small claim, he said. The bigger claims run into the millions.

Severinghaus said there are many areas in which advisers get sued most, and he offered tips on how to safeguard yourselves:

Execution errors. Advisers frequently get sued for making trade errors. This is the most frequent source of loss for advisers who manage assets.  To safeguard from this, Severinghaus suggested advisers put basic policies and procedures in place to reduce the magnitude of errors. For example, match every order against confirmations and promptly resolve discrepancies.

Also, keep a log of erroneous trades to look for patterns and promptly address them.

Finally, maintain a discretionary fund to address erroneous trades before they get worse. Fix errors as soon as possible.

Client selection and deselection. Focus on onboarding clients who will take your advice. Steer clear of clients who are overspenders, who won’t take your advice, who are unwilling to take effective risk, who are not in need of the services you provide, who are unethical or who are high maintenance.

Clients who overspend are particularly prone to bring lawsuits against you.

“When the money runs out, they’re going to blame somebody and it’s always the person managing their money,” Severinghaus said.

Documentation. This is the biggest piece in defending yourself against litigation. Document everything—every client interaction and meeting—especially if the client did not take your advice. At your quarterly meetings, have the client sign documents noting they understand the reports and your recommendations.

Clients don’t always tell the truth, Severinghaus said, so having proof of what was said at your interactions is key.

“Competent behavior requires ongoing documentation,” Severinghaus said.

Wire fraud. This is a hot-button topic in recent years. More advisers are getting duped into wiring their clients’ money to clever hackers who have enough knowledge of the clients to be convincing.

If you suspect an email is fraudulent, pick up the phone and verify with your client that it was in fact them who contacted you. Don’t trust voice recognition either. When a client calls asking for something you think may be out of character, ask them if you can call them back with the number on file just to verify.

Also, ask questions fraudsters won’t know, and don’t send pre-filled wire instructions.


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FPA Events: FPA Retreat 2017

chateau-elanOnce again, Chateau Elan outside Atlanta, Ga., is the quintessential setting for effortless engagement and organic networking at Retreat 2017.

For those who have not had the pleasure of attending Retreat, this deeply relational event focuses as much on the art of being an intuitive financial planner as it does the science of best planning practices. Maybe even more so. Of course, attendees receive world-class, peer-to-peer learning that elevates their professional effectiveness. That has been the goal of Retreat from the start 37 years ago. But, ask any regular attendee, and you’ll hear the real reason they return year after year—for the human interaction, the mentoring and the stories that so often teach us the lessons that remain with us for a lifetime.

Additionally, Retreat plays a vital role in connecting the next generations of planners. As conventional standards for achieving success in business give way to such interpersonal capabilities as engaging and inspiring others, Retreat will be the bridge for an ongoing interchange of expertise, experience and insights that connect the generations and foster authentic relationships within the FPA family.

MentorMatch has been hugely successful in addressing the needs of newer practitioners through connection with experienced advisers who help shorten the learning gap significantly for their mentees. Likewise, mentors find that the learning goes both ways as they build relationships with young planners whose skillsets are different from their own. Something intangible rubs off on us in the company of an older and wiser generation. And who can deny the surge of energy and innovative ideas we pick up from the younger crowd.

It is win-win. And those involved in the program enjoy sharing the benefits and rewards of the experience, whether they’re on the receiving end of a mentor’s sage advice and generous support or paying it forward as they walk with younger planners though the challenges of building a successful practice. In the end, we are all reminded of what matters mos—and why we do what we do as financial planners and advisers.

Space is tight so grab your spot not! Visit fparetreat.org for more information and to register.