Should a Financial Adviser Inherit a Client's Assets?
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Should a financial advisor be able to inherit assets from their clients?
What prompted this Wall Street Journal investigation into advisers inheriting clients' assets?
The Journal recently reported on an advisor who did just that. Congress saw the story and now is getting involved to stop it. We'll speak with the reporter who wrote the story in a moment. First, these money and market stories you should know. Inflation is currently sitting at 2%, but don't expect it to rise much in the near future. Amid the data that came out of the Federal Reserve on Wednesday, the central bank said it sees no reason to lower interest rates to bring prices higher. In fact, New York Fed President John Williams said he expects the economy to grow just over 2% this year, and he sees the 3.6% jobless rate going even lower as the year goes on. And he says that worries about the economy have subsided a bit since the start of the year.
And Harriet Tubman won't be appearing on the $20 bill anytime soon. In fact, it might be another decade before that happens. You recall back in 2016 during the Obama administration, the Treasury Department announced a broad redesign of the $20 bill. Well, Treasury Secretary Steven Mnuchin said on Wednesday of this week he was focused on new security features on the 20 to fight counterfeiting. But any decision on images likely won't be made until 2026. Now, originally there was a push. to put the image of a woman on the $10 bill, replacing Alexandra Hamilton, but that triggered a public campaign to keep Hamilton that was inspired by the popular Broadway play about the first Treasury secretary that led officials to consider a woman for the $20.
In April, the Wall Street Journal reported how some financial advisors inherit money or property from their clients. Well, that came as a surprise to many on Capitol Hill, and now Congress wants answers. Gretchen Morgenson wrote that story for the Journal, and she joins us with details. So, Gretchen, senators from both parties have taken issue with many facets of this story, including the ethics behind financial advisors inheriting assets. But a loophole in the law actually allows it?
Well, what happened was we had a situation in Maryland where a broker was a beneficiary in an elderly client's will.
What background market and policy updates set the stage for the story?
Even though his firm had rules against bequests saying that you had to tell your superiors that you had received a bequest, you were going to receive a bequest, he did not do so. And he received a quarter of the assets in the client's account.
A quarter of all of her assets.
Which was $500,000. Oh, my. So this was an interesting situation. I think a lot of people were shocked by it. I received a lot of emails from readers saying I had no idea that this was even allowed.
So this does go on to the point where this financial advisor's firm had set up more or less guardrails and rules around it. So it's not an unusual thing to happen.
Right.
Well, I had never heard of it before. You obviously have the potential for conflicts of interest when a financial advisor is a beneficiary to a client's account. And so you would think that there would be rules and regulations against this. But in this particular case, the regulatory authority that oversees this broker and most brokers in the United States, the FINRA, it's called, the Financial Industry Regulatory Authority, did not bring action against the broker, did not bring action against the firm, even though he did receive this bequest. So I think what the lawmakers are saying is this is a loophole. This is something that needs to be changed, and it needs to be changed now.
And the woman, he was a longtime advisor to her. She knowingly bequeathed this money to him. There's nothing really in the story that said that she didn't have all of her faculties or anything like that. She seemed to want to do that.
Well, that's a question, actually. She did make the bequest. However, doctors, or her doctor, said that she was probably not understanding what she was signing when she transferred her accounts into an account that would pay the beneficiaries directly.
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