Episode summary
Handling Client Requests That Go Against An Advisor's Recommendations, With Shelitha Smodic
Financial Advisor Success (Kitces)
· · 29 min · Hosts: Michael Kitces · Guests: Shelitha Smodic
Summary
When a client asks an advisor to do something that conflicts with the advisor’s recommendation, the key issue is not just whether to execute the trade, but whether the instruction is lawful, reasonable, and properly documented. Shelitha Smodic explains that the CFP Board fiduciary standard explicitly includes the duty to follow client instructions, while SEC-style fiduciary interpretations also point to an agent-principal relationship that requires following lawful directions from the client.
The conversation focuses on practical judgment in the moment. If a client wants to sell everything during a market downturn, the advisor should first listen, understand the fear or goal behind the request, and then explain consequences such as taxes, missed upside, and alternative approaches. Shelitha emphasizes that “reasonable” is about the client’s capacity to make the decision, not whether the advisor thinks the request is a good idea. Advisors should also be alert to authority problems or undue influence, especially when a request may come from a spouse or another party without proper power.
Documentation is central: notes, written acknowledgements, and even signed direction letters can help prove the request was client-directed and that the advisor explained the risks. But the episode argues the issue does not end there. Repeated requests against advice may signal a mismatch in trust, service model, or account authority, and in some cases the right answer is to change the engagement or resign from the relationship.
Key takeaways
- Shelitha Smodic says the duty to follow client instructions does not eliminate an advisor’s duty of care or obligation to explain consequences.
- Advisors should distinguish between a client’s lack of capacity and an advisor’s belief that a request is simply unwise or emotionally driven.
- Clear documentation, including signed acknowledgements, can protect both the client and the firm if the client later regrets a directed trade.
- Repeated client demands that override advice may justify changing from discretionary to non-discretionary management, narrowing the service scope, or ending the relationship.
- Shelitha says unusual requests can also raise authority or undue influence concerns, especially when a spouse or third party may not have the right to direct the account.
Notable quotes
“a CFP professional must comply with all objectives, policies, restrictions, and other terms of engagement of all reasonable and lawful directions of the client”
“it's less of a professional judgment of their instructions and it's more about their ability to reason”
“the last thing you want to do let's let's continue with our example”
“documentation really helps us here too because having those conversations AI notetakers can really help us a lot to be able to document exactly what the advisor told the client”
“we don't lose our duty of care. So we can still be caring and use our skill and prudence and professional judgments to support our clients”
How the episode opens
We can still be caring and use our skill and prudence and professional judgments to support our clients even in scenarios where they're moving forward with something that is not an action that we would advise on.
Hello and welcome back to the Financial Advisor Technician podcast. I'm your host Adam Vanusen. On today's episode, we're going to discuss a challenging scenario for adviserss.
How to respond when a client requests an investment trade or other action that goes against the advisor's recommendation. For example, during a major market downturn, a client might call in a panic and ask the adviser to shift their entire portfolio to cash despite the adviser's recommendation to stay the course. Because while investment advisers and CFP professionals have a duty to follow client's instructions, this situation raises a variety of questions for the adviser.
from how they might mitigate the fallout from a potential complaint from a the client in the future if they regret the action that they took to whether they want to continue working with the client at all. To help us dig deeper into this topic, I'm joined today by Shalitha Smodic, the CE nerd writer here at kitsus.com to discuss the compliance requirements that can inform how advisers act in this type of situation, a process for navigating the client's request in the short run, and how advisers can make decisions about how to handle the client relationship going forward. So, welcome Shalitha, and thanks for joining us here on the Financial Advisor Technician podcast.
Thank you for having me, Adam. I'm excited to talk about this with you today. Well, terrific. So to start, perhaps you could discuss, you know, the compliance requirements advisors have when you know dealing with a client request that goes against their recommendations.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- client requests against advisor recommendations
- fiduciary duty
- compliance requirements
- client authority capacity undue influence
- documentation and decision process
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Financial Advisor Success (Kitces), this episode and its artwork belong to Michael Kitces. Octagon is not affiliated with the show; this page is an independent summary.
