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Ethical to do this?


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If the judge wants the client to have see a professional financial planner, presumably that is because the client needs to know about suitability of the investment, and not simply whether it is or isn’t a misrepresented product.

I’m not fully versed in structured products, but one reason explained to me about how CDOs could turn turd-like debt magically into AAA investible gold was because the AAA rating was only about the special-purpose-vehicle’s ability to pay out whatever the contract said it was supposed to pay (which would change depending on default rates) - it said nothing about whether the cash flows they were supposed to pay would resemble anything like the cash flows of traditional AAA bonds.  I.e. everything in the CDO goes bust and I don’t pay you - that’s fine, because the contract says I don’t have to pay you anything in that case.  My chance of defaulting on my contracts is equivalent to AAA because I never promised I’d pay if someone else went bust, but your money is still gone.  

When people would ask about “is my money safe, because the underlying collateral looks a lot more dodgy than usual AAA rated stuff,” marketers would say something along the lines of “mumble, mumble, mumble, low correlation, mumble mumble, so it’s AAA and a great interest rate, how much should I put you in for?  How about your full fixed-income allocation?”

My point being that just because the price is accurate and the interest rate is accurate doesn’t mean that the investment is suitable, and a financial planner needs to get a sense of the clients’ needs and risk tolerance to make that judgement.

And the CFA code of ethics says that it is unethical give investment advice to clients without considering their needs and risk tolerances, whether you are paid or not.  Though you can often get out of this with appropriate disclaimer language.  When I’m asked stuff casually, I’ll often say “I can’t reallly say if it’s appropriate for you without more information about your needs and risk tolerances, but on its own merits, this particular investment seems good/bad/reasonable/risky, and can make sense for those who don’t have similar exposure elsewhere and are comfortable with the level of risk it represents.”  If it’s risky but with enough expected return to justify some exposure, then you say a small allocation can make sense in some cases, provided the investor understand what risks come with it.

You want a quote?  Haven’t I written enough already???


I would imagine that the reason that the judge asked Mr. ______ to consult a financial planner is because the judge wanted him to understand the financial implications of such a transaction.  It doesn’t sound like you fit the bill, because you’re not advising him on how this fits into his financial situation. 

That being said, I still don’t think you’re doing anything unethical.  You stated your qualifications, your compensation (which is NOT a contingent fee), and declined to give an opinion.  Doesn’t sound like a violation of ethics to me, just sounds like it’s not exactly what the judge ordered. 

If Mr. _______consults with you, and you write the letter containing your numbers and the judge says that it’s okay, I don’t think there’s anything unethical about the situation.

82 > 87
Simple math.

If you are giving the advice to the bank and simply stating to the bank that you’ve established that the PV is X under discount rate assumption Y, then you’re fine.

If you are giving the advice to the end client, then you have to consider not simply the accuracy of the prospectus, but also investment suitability for the client, which means understaning their financial objectives and risk tolerance and how it fits into their other investments, letting them ask you questions and making an honest effort to gauge whether the client is asking the right questions for their financial situation.  And, typically, all of this ultimately requires rendering some kind opinion, along with a statement of what the risks are.

That’s what the CFA standards of practice say.  As far as whether it’s good enough for the judge, that’s a different story.  Will the judge decide that CFA is equivalent to a financial planner?  It’s probably the bank that faces the liability there, not you, but it is still worth considering.

You want a quote?  Haven’t I written enough already???


Why is there a judge involved in the first place?

You want a quote?  Haven’t I written enough already???

You should not do it because you are not a professional financial planner. 

Sweep the Leg: "I’m tired."
KMeriwetherD: "Well, you were basically Legolas in the Battle of Water Cooler."


A financial professional is very different from a professional financial planner. 

And if you poke the fire long enough, you are likely to rouse some opinions about the professionalism of financial planners. 

82 > 87
Simple math.

Ah, well, if it’s just a financial professional, that’s a different level of expectation than a professional planner.  And CFA would qualify you as a financial professional, yes.

You want a quote?  Haven’t I written enough already???

Doesnt seem worth it for $500.  Your friend should understand.  He can do what you are doing using an online annuity calculator.

Does it make sense to pull a Richard Nixon if you are cornered on this? For instance, the conversation could go something like this:

Designated Officer: “So what in a sense you’re saying is that there are certain situations…where a Charterholder can decide that it’s in the best interests of the client or something, can do something unethical?”

You: “Well, when a Charterholder does it, that means that it is not unethical.”

DISCLAIMER: The above situation does not constitute actual advice to the OP. The dialogue is merely presented for comedic effect, and in no way is a recommended approach in handling a similar situation which may or may not be faced by an actual Charterholder.

"When what I'm doing isn't working, that's when I'll take your criticisms." -- Me, some time ago


You first said, (I  quote) “The judge’s exact request was: ”The Court directs Mr. ______ to speak with a professional financial planner before the Court will consider granting the application.”

and then you quoted the  in email saying, “ Per our discussion, the judge simply requested that Mr. ______ speaks to a financial professional regarding his transaction with us.

Now whole legitimacy of your right to reply depends on which one is true. A CFA Charter holder is a ‘finacial prefoessionl’ and not a ‘qualified financial planner’  which is as true as any ’ Certified Financial Planner’ is not a qualified ‘financial analyst’.

So, bchad , DoW and andytrader  are right in discouraging you to misrepresent for the sake of $500. Think over and answer yourself  “Are you qualified (CFA charter or no charter, because what you are doing is fundamental calculation which any finance person can do) to give justifiable comprehensive in-depth advice on the mattter, if asked to do so again, not merely half-baked opinion with limited scope and perview?” Unless you have been a finacial planner or otherwise qulaified to do financial planning per se, I don’t think so.

It seems to me that you are being “expertised”, and as such the judge will regard anything you say or do as your expert opinion.  If you aren’t willing to offer an opinion, you add no value to your friend’s company.

This space available.

I’m still curious about why there is a judge involved in the first place. Most financial transactions don’t require a judge to intervene, particularly in the beginning.  Why the judge wants the client to talk to a financial professional seems pretty key to understanding whether what you are doing is ethical.  Ethics is different from legality. Legality means you complied with the law as it is recorded (i.e. obey the letter of the law).  Ethics includes things like understanding the intention and a best effort to meet those intentions in an honest and forthright manner.

Perhaps you can’t say because of confidentiality requirements, which I can understand, but it also seems to be pretty relevant to us giving you a reliable answer. 

Is this because the bank is trying to roll up a legal judgement into a lump sum and the judge wants to be sure the client is getting the full amount?  I guess that would explain why the client would want a low interest rate rather than a high one. 

You want a quote?  Haven’t I written enough already???

You need to understand the intent of the order given by the judge. Please don’t get me wrong but it almost sounds like that there’s a legal requirement that the client (not your friend, not the bank he’s working for) must discuss the investment with a financial professional (or planner) so that the client is NOT disadvantaged by the investment (if you want the CFAI terminology it’s standard III C Suitability of investments). Essentially the court (or the judge) is exercising a fiduciary role which does indeed extend to the financial professional or planner whatever you want to call the person.

I’m not sure about the case here, but some trust funds require that the beneficiary file an application before funds can be cleared to be withdrawn. A judge may get involved when there’s a dispute or even as a standard procedure in some states.

Now it appears that for some reason the client is not consulting an independent financial planner; perhaps the client’s not savvy enough or the bank or your friend has persuaded the client to use the “knowledgeable financial planner” that they can recommend a.k.a YOU. If that’s the case, your friend or the bank he works for MAY BE ”working around” the legal requirement by hiring you on behalf of the client to validate the price of the annuity which may NOT be the only “intent” of the judge’s order.

Further if the bank has any vested interest in the annuity business, you must definitely disclose that you are being paid by the bank for validating the price of the annuity to the client (my recommendation is you should disclose it anyway).

There’s still the issue of the suitability of the investment which has not been judged in the context of the client’s total portfolio and objectives and constraints. Presumably you do not have access to such information - you may not even be speaking to the client directly. 

Who is supposed to judge the suitability of the investment? Most likely the client’s financial planner. But the client doesn’t have one (this seemed like a logical assumption - correct me if I’m wrong). This means the bank is using your name to “work around” the legal requirement, they are using your name as a proxy for the “financial planner” of the client who’s intended to advise not just on the present value of the annuity but on the suitablility of the investement. Seems like a very slippery slope to me.

Sorry I don’t mean to be negative - for all I know the product’s great, it all works out well and the client is happy but what if it DOESN’T?

Remember that your name is on the line and the client’s money is on the line.  

How about this question:  from what you know of the client’s situation, do you actually think the annuity is a suitable investment?  If you don’t know enough about the client to say, then the answer is to find out more before making a determination.  To know if you are being ethical (as opposed to simply legal), you need to ask yourself that question. The code of ethics basically says “the end client’s interests come first, then your employer’s, and finally, your own.”  It’s unethical to take the money in order to convince the client to do something that benefits your employer but not the client (actually, it’s unethical whether you take money or not, but I just wanted to show the reverse priortization here).

As VR said, it sounds a little bit like the bank is trying to comply with the letter of the law while skirting around the intent (which is almost certainly to determine suitability, because if the bank is actually being dishonest about the PV at this interest rate, fraud is not so hard to establish).  The fact that they want the *client* to talk to a professional, rather than the professional to talk to the *judge* suggests that the judge is concerned about the suitability of the investment for the client, and not simply the accuracy of the PV calculation.

It also sounds like the people who are paying you want this client to take the product.  So you have to ask yourself honestly if is there a legitimate reason that the client would not want the product. If there is a reason, then you need to explain that the product could be a bad idea if certain things happen certain ways and let the client decide if they are willing to take that risk.  You can opine that the risks seem small in your professional opinion (assuming you have a reasonable basis for say that), but the client has to the information necessary to make an informed decision.

You want a quote?  Haven’t I written enough already???

if you are not licenced to sell insurance I don’t know why you would be considered an expert in the suitablity of the product.

I don’t think the judge is asking for someone to double check the math on the annuity

Ah people, let the poor guy make some easy money.


You need to punt this to a legit financial planner. The interests being served here are yours and the banks for sure, and maybe the client. 

Your boy wants you to do it because its good for his bank and probably him. You want to do it to pop a bottle or buy Warcraft gold or give to charity or whatever. 

Your reputation and that of the institute you represent (and all of us fellow charter holders) is worth more than this. If you’re going to do it, your caveats should be more frank, and you should disclose that you have not evaluated the investment in the context of the clients portfolio, objectives, and constraints. 

That could be hard because you want to help your boy and make a few duckets, but its the right thing to do. 

No quote needed

Do you have a compliance professional in your firm to adress this with? If you are an independent, perhaps the institute has a “hotline” that can address this more conclusively. I believe this thread has actually done a pretty good job of the task, and if I were you I would lean against doing it based on what has been pointed out. It appears your client has hired you to cover its bases and follow the letter of the low and not the spirit. The fact that a judge is involved (and you should know these circumstances pretty well to proceed cautiously) raises flags. Even more flags are raised in my eyes from a simple circumstance: the prospective annuitant actually does not have a retained financial planner, and is therefore either (1) a layman being sold a product and has not been alerted that he/she needs to have one involved or (2) someone who believes self to be fairly up to the task. The fact that a judge has been involved raises suspicions with regard to the “gravity” of the situation. And indeed, the level of expertise you have so far provided does not go far enough to contribute to the safety margin the judge intends by his order. Sorry if I am repackaging what has already been said, but my opinion is to turn down the assignment.

You’ve probably either decided to take the assignment or not already, but here’s a little tidbit I just received.

Speaking of Daubert challenges (see item above), a new court ruling serves as a warning to valuation analysts who testify outside their range of expertise. A federal trial court recently severely limited a financial expert’s testimony because of his lack of qualifications. Often, an expert is deemed qualified and then the expert’s methodology is challenged, but that’s not what happened here.

Don’t go there:  In the SEC’s current trial against a former Goldman Sachs trader, Fabrice (aka Fabulous Fab) Tourre, Tourre brought in an expert to testify about collateralized debt obligations (CDOs). The trouble was the expert had no experience with CDOs. While he was an expert at structured finance, he was more of an economic generalist and also a “professional testifying expert,” as the court put it. In pretrial Daubert proceedings, the court ruled the expert is “not qualified to present this opinion” about CDOs. “Being a professional testifying expert in the financial area does not give an individual the qualifications to opine in every financial area as to every type of analysis,” the court said.

This space available.