MOUNTAIN VIEW CFP ASKS: Aren’t my client records and conversations confidential?

Posted on August 3, 2011

San Jose Estate Planning Attorney Responds: It is not uncommon for financial planners to believe that their conversations and records regarding the information they learn from a client is confidential. In fact, the CFP Board Code of Ethics requires planners to keep client information confidential.

However, there are many areas where a financial planner’s documents or testimony regarding conversations may be discoverable by a court of law or the IRS. This is particularly true in the advanced estate tax planning area.

There is no legal privilege for financial planners. Conversations with your clients regarding tax planning and strategies may be subject to discovery. Papers detailing and explaining these strategies in your possession may also be discoverable.

You do not want to fall into the trap this financial planner did. As his clients decided to go aggressive in some of their estate tax planning strategies, the planner was involved in every aspect of the planning along the way. He sat in meetings with the attorney involved. He helped the client understand the strategies and what they involved. No one told him that there was a problem. No one told him that there was no privilege.

Later, after an estate tax audit, the IRS subpoenaed records from the financial advisor. You can guess the rest of the story.

A good financial planner is invaluable to the planning team. In fact, for many of our clients, it is the financial planner who quarterbacks the team and leads the process. However, it is important to remember where the limits of the financial planner’s involvement may need to end. There are times when a good attorney will want everyone to leave the room except for the client. The attorney is trying to bypass the other advisors. They are asking you to leave so they can have a private, attorney-client privileged conversation with the client. If any one else is there, whether it is the client’s children or advisors, there is no attorney-client privilege. And therefore, no protection.

Never Forget: your work papers, correspondence, and recollections or notes of client conversations are all discoverable in court or by the IRS.