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 CFP with United Capital Financial Advisors, with $260million in assets under management, the ultimate response is often the equivalent of "Pass the potatoes."
'TALK CONCEPTS, NOT PRODUCTS'
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 says.
Such a conversation "establishes your intellectual credibility," Pomeranz says. 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 says. "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, says 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 says.
She takes that as a cue. "If you feel uncomfortable, you should probably trust your gut," she says 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 chief operating officer for Hufford Advisors in Indianapolis, which has $350million in assets under management, says 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 his 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 says the advisors use that same process for families and friends, but with one difference: Family members receive a 50% discount on fees.
OVERSTEPPING A BOUNDARY
Ziliak says 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 says.
He ended up putting a stop to the problematic situation. "Ultimately," he says, "I had to experience the great discomfort of terminating the relationship" - referring to the planner-client connection. Brotherly love "remains stronger than ever," Ziliak says, 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 $43 million in assets under management and offices in Indianapolis and Los Angeles, where her sister lives.
When other family members and friends seek free advice, Hartman says, she and her sister steer them into a two-hour working session, for which Greenleaf charges a fee. That way, Hartman says, 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 services.
Hartman says 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, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.