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So You Think It’s OK to Date a Client?

By Chris Latham October 4, 2013

Teachers and their students. Doctors and their patients. Executives and their assistants. Some people just shouldn’t get romantically involved with each other. And guess what: Advisors and their clients are on the list, too.

Any relationship in which one party has significant authority or control over the other’s well-being becomes compromised if it leaves the professional realm, say ethicists and other experts. Unfortunately, according to psychologists, people often develop an attraction to those who manage an important part of their lives, be it health or finance.

Dave Grant, a fee-only planner who runs Finance for Teachers in Cary, Ill., saw it happen to a fellow advisor at a firm where Grant once worked. The colleague began dating a divorcee who was another advisor’s client, and despite other staff members’ concerns, he was allowed to pursue the relationship, because he didn’t manage the woman’s account himself. In less than a year the affair was over. The advisor avoided the woman when she visited the office, creating awkward situations.

Dave Grant
“You have a divorced woman coming in, not really understanding about money,” says Grant, who previously studied psychology. “She’s looking for a male advisor to make her feel secure about money [and do] things her husband used to do. That emotion is going to come across to the male advisor, and for many men that’s hard to ignore.”

Assets Out the Door

Often, advisors who date clients wind up losing their accounts. Steven Kaye, founder and president of AEPG Wealth Strategies in Warren, N.J., recalls two former colleagues whose romances with clients failed. (Neither took place at his firm, which manages about $800 million for 450 families.) One relationship lasted two years, the other two months, but both advisors saw assets go out the door along with their exes.

Ethics standards prohibit doctors and lawyers from being romantically involved with people they’re treating or counseling, unless the personal relationship preceded the professional one. But neither the SEC nor Finra has a rule restricting advisor-client dating. So it’s up to advisors to realize that the more influence they have over a client’s emotions, the more difficult it becomes to guarantee objective financial guidance. In other words, a romance creates an immediate conflict of interest.

Regulatory complaints involving romantic entanglements are rare. However, one case from 1998, involving a Prudential Securities advisor in Aventura, Fla., points to the potential consequences of such a relationship. A woman who’d had an account at Prudential’s Chicago office relocated to Florida and began dating a rep in the Aventura branch, eventually moving in with him. The rep assumed control of her account. Three years later, she filed a complaint with the NASD, charging the advisor with churning and aggressive day trading and asking for restitution plus punitive damages totaling $122,000. An arbitration panel awarded her $14,391.

Some advisors have had to fend off advances from clients to make sure nothing untoward occurred. Stephen Lovell, an LPL Financial advisor in the San Francisco area with between $25 million and $50 million under management, says that years ago at another firm he found himself dealing with an overly grateful client. A single mother, she would initiate long after-hours conversations that didn’t have anything to do with her account. Then she started bringing him gifts. She asked him to become a trustee for her estate; citing his firm’s policy, he declined. Next, she asked him to be the emergency contact for her teenage sons while she traveled. Finally, she asked Lovell to go out dancing. He said no to everything and ended the advice engagement.

Kaye warns advisors that they don’t have any better chance of forming permanent relationships than the rest of the population, noting that half of all marriages crumble. Still, he says, the phenomenon of dating and marrying clients “was much more common years ago. Now that the average advisor is age 57, not so much.”