Advisor Insight

When clients keep a secret (or two) from their advisors

Ilana Polyak, special to

We all have a secret or two buried somewhere in the back of the closet. But when those secrets are major financial non-disclosures that are kept private from a financial advisor, they can have serious consequences.

Take two of certified financial planner Vickie Adams' clients, a soon-to-be retired couple with a 17-year age difference. He, a bridge painter for the city of Los Angeles, and she a high school principal, were meticulous planners when they began working with Adams a few years before the husband's retirement. At the center of their retirement plan was his generous pension with a survivor benefit.

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The couple also owned a boat to which the husband was particularly devoted. When he retired at 70, they moved to a house south of L.A. to be close to the boat.

"Everytime they turned around, the boat needed more work and money," Adams said. "But it was OK, because they had done all this planning and he had that pension."

A year into retirement, Adams got a frantic call from the wife. She came down to breakfast that morning and found her husband dead on the floor from a massive heart attack. Finances were among her worries.

"I said, 'You'll be fine. You have the pension and all your other assets. Remember, we did all that planning,'" Adams said. "And then there was a pause on the other end."

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It turned out that before the husband retired, the couple had opted for a single life pension in order to get a bigger monthly check—a benefit that ended with his death. They had never told Adams.

Now that $5,000 a month of income had evaporated, and the woman was only in her mid-50s, too young to tap her own retirement funds. Luckily for her, she met someone and has since remarried a man who is financially secure. But that secret could have been the undoing of a well-crafted financial plan.

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"People keep secrets from their spouses, so of course they are going to keep secrets from their advisors," Adams said.

Though they may be used to secrets—some advisors even expect them—financial planners still say that when clients come clean, it makes for better planning.

Not willing to let go

That's what Margie Shard, CFP and owner of Shard Financial Services, encountered with a client a few years ago. The man, who was in his 50s, had a passel of stock certificates, the last bit of control he had over his investments, Shard believes. It was hard for him to let go.

He disclosed them slowly. "For a while, it seemed every time we had a meeting, he was bringing me a stock certificate," she said.

But one he didn't show her was for BP, the U.K. oil company whose stock tanked in 2010 after the Gulf of Mexico oil spill. "By the time he came to me with it, it was too late," Shard said. "We had stop losses on BP for our other accounts, but because it wasn't here, we weren't able to watch it and advise him to sell it."

Embarrassed by debt

Another area where clients often keep secrets is around debt. Many hope to resolve them without their advisor finding out. Shard's client, a man in his early 40s, kept that secret from not only her but his wife, as well.

The couple was socking away enough money in their retirement accounts and savings, but each month, their surplus income disappeared and they came up short.

"I kept saying, 'But you have this surplus,'" Shard said. "We were pulling their bank statements, and still I couldn't find it." There were a number of repeat cash withdrawals that the husband had initially said were for groceries. But he accidentally let it slip that "that must be for my credit card."

He had a credit card that was in his name alone, and it had a $15,000 balance. Each month, he took out cash from their joint bank account to buy cashier's checks to mail to the credit card company. Since then, his wife has checked his credit report quarterly so there are no more surprises.

Something on the side

Some secrets have to do with accounts that advisors don't know about.

Prior to starting his own fee-only financial planning firm, Daniel Wrenne, a CFP, was a broker with Northwestern Mutual. One of his clients had a $50,000 investment account with him. When Wrenne let his clients know that he was going fee-only, the man said, "I never told you this, but I have another brokerage account." That account, held with his father's broker, had $1.1 million in it.

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After probing, Wrenne, whose new firm is called Wrenne Financial Planning, learned that because of his commission-based structure, the client worried that Wrenne would pressure him to move the money over to him. Though the client isn't moving the bigger account over, Wrenne will be able to monitor it now.

Then there are the secrets about business deals gone bad. Another client of Wrenne's had gone into a gym franchise with a fellow doctor. A year into working with him, Wrenne found out the client had already lost $50,000 on the venture and he was worried that the deal would become a financial sinkhole that required more money.

"I find out about these things when they go bad," Wrenne said.

—By Ilana Polyak, special to