Are you too nice to your clients?

It is easy to form a close bond with your clients. You may have been with them through their highs and lows of business ownership. Perhaps you have helped them out of a sticky financial situation. You may even know their children. 

While it is rewarding to see your clients succeed, there is a line between professional services and personal friendship.

Katherine Psomas, General Manager Professional Conduct for CPA Australia, says close familiarity with clients can lead to tricky situations.

“Perhaps you’re not as stringent in your processes with these clients, because you’re used to having a quick chat with them about their business,” she says. 

“But we find that if something goes wrong with that client’s business, they will look to their accountant for an explanation, and if you haven’t maintained that professional line, you can find yourself in trouble.”

Here are five instances where being too obliging can prove costly to your practice.

1. When virtual CFOs become shadow directors

Andrew Blundell, Principal at insolvency and restructuring firm Cathro & Partners, cites a recent case of an accountant who overstepped her professional role while providing CFO outsourcing services to a client.

“She got to a point where she was more personally than professionally involved and was effectively transacting on the company’s bank accounts at the behest of the director without any documentation to support the reasons,” he says. 

“She ended up being examined in the Federal Court because I took the view that she was a shadow director, and therefore potentially personally liable for some of the debts that the company had incurred when a director should have known that the company was insolvent.”

2. Acting as executor at no cost

Accountants often act as executors of clients’ estates, but close familiarity can present potential problems.

“We had one instance recently where a member was appointed as executor of a client’s will, along with the client’s lawyer,” Psomas says. 

“He knew the family and the beneficiaries quite well and decided that he didn’t want to charge the estate for his services, so he left the work up to the lawyer. He didn’t respond to repeated correspondence from one of the beneficiaries and ended up in strife for this. He said, ‘But I’m not even charging you for anything’.” 

Psomas says it is never wise to act as an unpaid executor.

“In this case, the member was appointed in a professional capacity and was penalised for not carrying out the appropriate duties of an executor.”

3. Advising on the sale of a business

If your client wants to sell their business, are you qualified to provide an evaluation?

“We’ve seen instances where a member has one client who wants to sell their business and another client who is looking to buy one,” Psomas says. 

“From the goodness of their heart, the member thought, ‘I can put these two parties together and help with valuations and contracts,’ but then the whole thing went pear-shaped because they lacked the skills or required licences to provide these services.”

Blundell adds that these favours can also lead to problems in the case of liquidation.

“If the company that originally owned the business has been placed into liquidation and there’s a review of the sale to make sure it was at reasonable market value, if the accountant was just helping with the sale as a favour, they may have provided advice for an undervalued transaction that can then get clawed back by a liquidator,” he says. 

“If you provide advice for something that’s not in your wheelhouse, you may be held liable for any of the damages that the company sustained on the basis of that sale.”

4. Overlooking obligations as a registered office

Many accountants charge clients a small fee to act as their registered office. But Psomas has seen instances where friendships with clients have caused members to overlook their obligations.

“Quite often, they may not forward ASIC documents until weeks after receiving them, or they may just mention them verbally rather than sending them, because that line between professional obligations and a personal relationship has become blurred,” she says.

“We’ve also seen instances where members have formed a friendship with one director of a company and so they tend to communicate with them more closely than with the other directors,” Psomas adds. 

“As a result, they are less likely to scrutinise paperwork that they receive from them and lodge documents with ASIC without checking that all directors have approved them.”

5. Providing advice on SMSFs

While accountants must be covered by an Australian financial services licence to give advice on self-managed super funds, Psomas says some members may inadvertently cross the line.

“If they’ve formed a friendship with a client, they may not even realise that some casual comments have crossed the line into the financial advice space,” she says. 

“We’ve seen instances where a client has said, ‘my accountant told me this investment was a great idea, so I went ahead and now I’ve lost all my money’.”

To avoid stepping over the professional line with clients, Blundell says accountants should only provide services that they are legally obliged and qualified to deliver. 

“If a client asks you to provide a service and you’re not qualified to provide it, explain this to them, and consider whether there is a qualified person in your network who you can refer them to,” he says.

“Always have clear engagement letters that outline the terms of your services and update or reissue them when services change,” adds Blundell. 

Avoid providing services without charging and always consider your APES obligations in relation to independence.

“This is something you should think about before taking on those engagements,” Blundell says. “Are you too close to that person to provide independent advice? Can you always walk the professional line?”