SEATTLE -- Last year's holiday season wasn't the best for Dan Candura.
The founder of ethics training firm Candura Group and president of PennyTree Advisors, both in Braintree, Mass., found out during the first week of December that he has advanced prostate cancer that has entered his lymph nodes. Hormone therapy and radiation will keep the cancer in check for a time, but eventually it will spread to Canduras bones and organs.
After he told his family, he decided to tell clients. My wife didnt want me to disclose this because she felt that it is private information. I teach ethics, and I started looking at the [CFP boards] rules for disclosure, Candura said during an ethics session for advisors with the CFP designation at FPA annual conference this week.
I thought the right thing was for people to know what was going on. I would need to spend less time in the office during the summer, so I could go to my radiation appointments, Candura said. I needed a three-month period where I wasn't traveling at all. I realized that I was telling other people, and there was no reason that I shouldnt tell my clients, too, Candura explained.
I would want to know that someone I was working with had a serious illness that might affect their ability to work with me, he said.
CLIENT'S BEST INTEREST
Under the CFP designation, the fiduciary standard involves working in the utmost good faith and in the reasonable belief that you are doing what is best for the client at the time that you consider options and make a decision, he said. Your loyalty and prudence are to them and to them only, Candura said.
Your desire to grow your business will never outweigh your fiduciary duty, he said. When you find yourself thinking about how something affects you, youre in the wrong ballpark.
During Candura's presentation, he helped attendees:
- Define elements of the fiduciary standard.
- Determine when the fiduciary standard applies in a variety of financial planning contexts and scenarios.
- Determine if a CFP professional is providing financial planning services or material elements of financial planning services.
- Explain the CFP boards compensation disclosure requirements to clients and prospective clients.
- Communicate potential conflicts of interest to a client at the initiation of client engagement.
LESSONS FOR ADVISORS
Canduras presentation included animated short films in which a cartoon financial planner asked what option should be chosen in a particular situation. Session attendees then voted for one of four possible answers.
The answers were revealing. In many instances, attendees found out that the action they chose wasnt the ethnically correct option.
In one case study, for instance, a group of three adult siblings inherited concentrated positions in Apple stock. The planner told the siblings to sell at the stepped-up basis, and the two sisters took his advice.
But the brother didnt sell, and now his portfolio is worth much more than either sisters investments. The advisor still thinks the brother should sell his concentrated position, but the brother doesnt see the need.
What should the advisor do? Most of the sessions attendees agreed that the planner should ask the brother to sign an agreement acknowledging that he had chosen to ignore the planners advice.
That is the wrong answer, Candura said. A signed agreement is in your interest, not his, Candura said. Instead, options with periodic sales or making reducing the position a condition of working together are both workable options and in the client's best interest.
In a second case study, a planner sold a 65-year-old man a variable annuity 15 years ago. It pays a guaranteed 4%. The contract has high mortality and expense costs but was the best available at the time and at the advisors previous firm. Is a 1035 exchange into a new contract a good choice? Does it matter that such an exchange would bring the planner a nice fee?
Attendees voted for presenting a value analysis of both contracts, again, the wrong answer, Candura said. The old contract has no surrender fee and might have a guaranteed death benefit. The new contract will likely have a lower guaranteed rate of return or no guarantee at all, Candura said. You can't just say, Youll make more money over here, he said. Planners should be really, really careful when dealing with seniors and annuities.
A third case study involved a married couple who are the planners friends and clients. They divorce acrimoniously, and both ask for the planners financial advice. Many attendees voted to let the advisor keep working with both clients, another mistake, Candura said. You have a joint financial planning agreement with them, working on their mutual goals. How do you act as a fiduciary during this incredibly difficult period, when divorce is often a zero-sum game? Candura said. Both parties deserve their own fiduciary advice from their own counselor.
Canduras last example involved his own situation: A planner has a chronic disease, with no external signs or symptoms and knows that his condition will worsen. There will be times when he is as available as he would otherwise be.
Should he tell clients about this? Yes, Candura said. Anything that could impair someones ability to offer impartial advice is a potential conflict of advice.
Candura had worried that his disclosure would blow up my practice, he said, but only two clients have left. I've gotten a ton of help, he said.
In any case, Candura has no regrets. If I didnt want to follow the rules, I dont have to have a CFP certificate. If I do want to have the designation, I need to follow all the rules, Candura said. Its not easy to rise to the fiduciary level, but it benefits those of us who carry the CFP designation, and it benefits clients.
Ingrid Case, a Financial Planning contributing writer in Minneapolis, is a former editor at Bloomberg News and author of Your Own Two Feet (and How to Stand on Them): Surviving and Thriving After Graduation.
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