What do a missed opportunity, servicing a client and breaching compliance obligations have in common?

Here’s an explanation in the form of an example: How wonderful that Mr. Smith wants to transfer his accounts to you. You meet Mr. Smith for the first time in your office and he tells you that he has a wife and three grown children who are all married and working for the family business. Mr. Smith manages the family money and makes all decisions, so he will need powers of attorney signed by his wife and children to enable him to direct and instruct you. He tells you to give him the forms and he will have everyone sign them and return them to you.

This is a big account, so you provide Mr. Smith with copies of the power of attorney documents and account opening forms (know-your-client forms) for each of the adult children, their spouses (joint accounts) and Mrs. Smith. Mr. Smith tells you that he will have them completed, signed and returned to you.

What are the compliance infractions with this scenario? The obvious one is that you’re obliged to actually know your clients; and if you don’t meet Mrs. Smith and their grown children, then you don’t actually know them. Furthermore, you have an obligation to advise clients who sign a power of attorney and open a joint account what the implications are to them — both legally and practically.

But you’re trying to “service your client” by allowing him to call the shots and tell you what to do. This is only the beginning of the relationship; and although you might lose the account if you do not succumb to the client’s wishes, you risk losing your licence and, hence, all of your accounts if you allow any client to call the shots that lead you to breach the rules.

However, there’s something equally important that you missed here, and that is a longer-term view to growing your business. Mr. Smith is 72, and while he’s the patriarch of this family, he will not live forever. In fact, you notice that he’s overweight and his complexion is red; maybe he has high blood pressure or something even more serious? We do not have a death wish on this client — whose assets will significantly impact your assets under administration and also clinch the reward for being a top producer for your dealer — but a longer-range approach is fundamental to building a business that will sustain regulatory scrutiny.

What if Mr. Smith passes away and you have never met Mrs. Smith or the three grown children? Do you expect that they will stay with you or do you expect that they will move their assets? Do you think they will feel comfortable with you, having never met you, or suspicious of the fact that they never met you and have their new advisor scrutinize each transaction and all investments in the accounts.

Is the new advisor likely to say to Mrs. Smith and the children: “Wow your dad’s advisor is amazing and really chose a perfect portfolio for you and you should keep your money with him”; or will he more likely trash you and direct Mr. Smith’s wife, son or daughter to the regulator and a lawyer to commence proceedings against you? Surely, the shoe has never been on the other foot and you have never told new clients that their previous advisor made bad choices for them, have you?

For advisors who give documents to one spouse and don’t meet the other spouse this is not only a regulatory infraction, it’s also a missed opportunity as Statistics Canada confirms that women outlive men. Furthermore, we all know that after the death of an elderly person, it’s not uncommon for the beneficiaries (often the next generation) to commence litigation after complaining that there were several regulatory infractions. They convince their mother that this is the right thing to do and she’s front and centre of the litigation; the judge is sympathetic toward her, believing that she needs protection.

If you have not met the family then, beyond a regulatory infraction and increase in the risk exposure of your business, it’s also a missed opportunity. Remember there may be a very influential spouse who you have never met.

So, what does missed opportunity, servicing a client and breaching compliance obligations have in common in this scenario: Everything.