“What if” scenarios are good for thinking about and practicing personal and professional ethics. Here’s one that CPE Link instructor, Art Berkowitz, CPA likes to use.

As part of your accounting services, you provide limited financial planning services to your clients. One of you new clients (a middle-aged married) asks you to review their portfolio and make recommendations for investing an additional $100,000 they have in cash. In reviewing their portfolio you note the following:

  • The client is adequately diversified for their age between fixed income and equities
  • Approximately 35% of the equity portion of the portfolio is in one investment with a private money manager
  • The securities with this manager have outperformed all the other investments by 3 to 4 percent per year
  • The client tells you that this money manager waived his $1M minimum and accepted their investment of $250,000 because several friends invested at the same time.
  • The money manager has a track record of over 25 years of beating the S&P 500.

You check out the money manager and find that he does indeed have a long-term track record and is considered something of guru on Wall Street.

What recommendations would you make about

  • The 35% invested with the money manager
  • The $100,000 in cash your client would like to invest

Bernie Madoff—the money manager in question—has, by this time, served a little over 2 years of his 150-year prison sentence for fraud. But, remember, in this scenario, that hasn’t happened yet. Without the wisdom of hindsight, what would you, or should you, do?

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