Mingling at a dinner party several months ago, Steven Pomeranz, a financial planner in Boca Raton, Fla., found himself seated next to a corporate CFO who manages his own wealth. After learning that Pomeranz was an investment advisor, the executive started expounding about what he thought Pomeranz should do in the stock market -- then asked for advice about specific companies in his own portfolio.
"He told me, 'I could use some help,'" recalls Pomeranz, who from experience knew to pass on what others might see as an opportunity. "It sounds like you've already got it all figured out," he told the man.
Such a situation can prove sticky for a planner. How much should an advisor give away in a social setting before suggesting that an inquirer pay for such information? More broadly, how should planners respond effectively when an acquaintance, friend or relative seeks free advice -- or even asks to become a paying client?
And if a friend or relative does agree to pay for advice, how can the planner restructure the relationship so that customary informalities and intimacies don't obliterate the boundaries needed between an advisor and client?
For Pomeranz, a Certified Financial Planner with United Capital Financial Advisors, the ultimate response is often the equivalent of "Pass the potatoes."
But before he shuts down a freebie seeker, Pomeranz makes a point of answering a few general questions. A local radio show he hosts has helped him develop a knack for talking about the basics of planning without getting into specific advice that he would expect people to pay for. "I talk concepts, not products," he said.
Such a conversation "establishes your intellectual credibility," Pomeranz said. And it may help set the stage for an eventual planner-client relationship.
Those initial conversations also help Pomeranz assess whether the other person really wants advice or will resist counsel. "I do this for a living, but there are plenty of guys out there -- engineers, some doctors -- who think they can do it for themselves," he said. "If they think they can, that's OK. I'm not a missionary. My job is to make them realize that if they come to me as a client, I'll be doing the financial planning."
TRUST YOUR GUT
Elizabeth Leigh Bivings, founder and chief executive of Artemis Financial Advisors in Boston, said she has not encountered situations "where people are looking for free advice." But she does have friends who want to hire her.
"They say, 'I think you'd be terrific,' but then they add, 'I don't want you to be conflicted because of our friendship,'" Bivings said.
She takes that as a cue. "If you feel uncomfortable, you should probably trust your gut," she tells them. That tactic has worked well in helping her sort out who should become a client, and "now some of my best friends are some of my best clients."
Robert Ziliak, a CFP who is the chief operating officer for Hufford Advisors in Indianapolis, said the family-and-friends issue "can be hazardous to one's health."
His approach: "The most prudent way to navigate a family-and-friends environment is to treat them as if they were any other type of prospective client. Be straightforward and they will come to expect to pay for services."
Hufford Advisors has a client roster primarily of dentists, and Ziliak and his colleagues have developed a series of scripted conversations they follow to determine whether a dentist will be a good client. Ziliak said that the advisors use that same process for families and friends, but with one difference: Family members receive a 50 percent discount on fees.
OVERSTEPPING A BOUNDARY
Ziliak said that he learned "the hard way" about failing to set clear boundaries with a family member.
About six or seven years ago, while advising his brother, he reacted emotionally when he learned his brother was thinking about buying a rental home four states away. The problem was that "I had failed to formalize the relationship," Ziliak said.
He ended up putting a stop to the problematic situation. "Ultimately," he said, "I had to experience the great discomfort of terminating the relationship" -- referring to the planner-client connection. Brotherly love "remains stronger than ever," Ziliak noted, but it would have suffered if he had continued in the role of advisor.
Kathleen Hartman, another CFP in Indianapolis, also works with a sibling. But the sisters are business partners, not planner and client: The two operate Greenleaf Financial Group, which has offices in Indianapolis and in Los Angeles, where her sister lives.
When other family members and friends seek free advice, Hartman said, she and her sister steer them into a two-hour working session, for which Greenleaf charges a fee. That way, Hartman said, the family and friends don't have to commit to a long-term role as clients - yet they receive substantive help.
At the same time, she and her sister don't give away their planning services.
Hartman said that some friends who "would make my life miserable" have sought to become clients. Her exit strategy in those cases: "I put all the blame on myself and just keep repeating, 'I don't think we have the services that you are looking for.'"
Miriam Rozen is a contributing writer to Financial Planning, and a staff reporter at Texas Lawyer in Dallas.
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