The Ethicist: Mental Illness and Financial Advice

The financial services profession can present an array of ethical quandaries and predicaments. The American College of Financial Services offers insight and perspective with regard to professional ethical dilemmas.

Are you looking for some perspective on an ethical issue? Julie Ragatz, the Charles Lamont Post Chair of Ethics and the Professions, Director of the Cary M. Maguire Center for Ethics in Financial Services, and Assistant Professor of Ethics, wants to hear from you.

In this edition, The American College Ethicist considers a financial advisor's concerns over a client's apparent mental illness.  

The Question

Five years ago, I acquired a married couple in their late 50s as clients. Let's call them Tom and Joan. Tom had recently retired from his job as a steel worker; Joan worked as a stay-at-home parent to their two children. My dealings were primarily with Tom, although I had met Joan a few times during the course of our relationship. Tom described Joan as "anxious" and "skittish around new people," and my time with her confirmed this description. My suspicion was that Tom took an early retirement package, which was not a great financial decision for the couple, in order to spend more time at home with her.

Last year, Tom died suddenly of a heart attack. Since then, Joan’s behavior has become more erratic. She is increasingly paranoid and worried that the government or her husband’s former union members will confiscate her funds. She is spending excessive amounts of money and will run through her resources soon if the current patterns persist. I am worried that Joan is suffering from an undiagnosed mental illness. I have asked her repeatedly if she would consent to allow one or both of her children to attend our meetings or if she would agree to allow me to reach out to them. Each time she refuses. I believe that Tom and Joan hid the extent of Joan’s problems from their children. I want to fulfill my obligations to look out for the best interests of my client, but I am at a loss as to what to do next.  – Bill 

The Consideration

It has been said that “the best defense is a good offense” and this case provides us with an important lesson. It is often hard, even for experienced practitioners, to imagine and plan for the death of a relatively young and seemingly healthy client. Even if all signs had pointed to Tom outliving Joan, it would have been helpful to plan for the situation that ultimately occurred. This would have required a candid (and probably very difficult) conversation with Tom about Joan’s limitations and how to best compensate for them.

These “courageous conversations” are challenging, but they are an essential component of fulfilling the role of trusted advisor. There are attorneys who focus their practices on special needs law, with a component that deals with people suffering from mental illness. It is wise for financial practitioners to familiarize themselves with the names and reputations of local attorneys whose expertise could help clients like Tom ensure the future security of their loved ones.

While you are bound to adhere to Joan’s wishes in terms of keeping her financial information confidential, it is imperative for you to document your interactions with Joan as well as your impressions of her mental and decision-making capacity during these encounters. If she is making financial decisions contrary to your recommendations, it is important to document both your recommendations and your conversations with her about these recommendations.

If Joan makes a poor financial decision, for example, to withdraw funds for a dicey real estate venture, it is possible that her family may question whether Joan was advised to engage in the risky transaction. It is possible that they may bring charges against the advisor. Documentation would clear the advisor against any accusation and would be admissible in an arbitration.

If you have not done so, reach out to your compliance department with your concerns. You could also encourage Joan to visit her primary care physician for a check-up; an astute practitioner will recognize the symptoms of mental illness and make appropriate recommendations. However, this practical sort of advice does not get at the heart of your concern, which is that you feel that you are unable to protect your client since you are bound by the need to respect her wishes regarding confidentiality.

The suspicion that a client is suffering from an undiagnosed mental illness is troubling. The situation you present is particularly distressing since there is a very real chance that Joan’s financial security will be compromised by her poor decision-making. “Moral distress” is a concept used in medical ethics to describe the feelings of regret when you are prevented, usually by institutional rules, from doing what you think is right.

While these feelings point to an engaged moral conscience that is committed to acting well, moral distress can be upsetting and painful. Unfortunately, these feelings are often a fact of life for financial, medical and legal professionals.

Although it may be too late for you to do anything for Joan now, this situation could inform how you handle future client scenarios.

Start having courageous conversations with clients early on in the relationship. Have a discussion about your obligation to them as a financial advisor, and how that obligation will evolve in the event of an early death or the onset of mental illness. They may not be easy conversations to have, but ultimately the outcome will help you do what is in the best interests of your clients.

Have a question for The Ethicist? Send it to ethicist@theamericancollege.edu. Your name and identifying information will remain confidential. Questions submitted are subject to editing for grammar, length and style.

Julie Ragatz holds the Charles Lamont Post Chair of Ethics and the Professions and is the director of The American College Cary M. Maguire Center for Ethics in Financial Services. Professor Ragatz teaches in the MSM, MSFS, and PhD programs at The College, and is currently a PhD candidate in Philosophy at Temple University.