Anyone in a professional service business, like being a stock broker, have been faced with a client who decides to make a stupid decision. But the issue we all face is when that decision results in the client losing money; who is to be held accountable.
Fortunately, the law does not require you to stop a client from making a stupid decision with their investments. As long as a broker-dealer’s advice was suitable and the investment advisor’s advice is in keeping with the fiduciary duty, you should not be held accountable.
But this does not mean a client who has now lost money won’t try to hold you accountable for letting them make a stupid business decision. So how do you protect yourself?
The best way to protection yourself is to send the client a letter or email at the time that the client makes the bad decision. The communication should detail why you think it is a bad decision and the potential ramifications associated with that decision.
At a minimum, you should make a note in your file, either electronic or in hard copy, that the client made the bad decision and that you (presumably) advised against it.
The law should protect you from stupid clients, but make sure you protect yourself. Contemporaneous communication to the client and notation to the file may save you millions of dollars in the future.