Trying not to SCARE Prospective Clients

Let me confess one thing. Someone I know personally spent time in jail because he knowingly onboarded a client that told him he was not accurately filing US tax returns. He was found guilty of aiding tax evasion (among other things).   I have no intention of finding out what that feels like.

Three “questions” or maybe “complaints” that we often get from prospective clients are -

1.      Why are you asking so many questions about what I do?

2.      Why do I need to complete your annoying organizer?

3.      Why are you asking about my previous tax professional and why I no longer use her?

I do feel the client’s pain. In fact, sometimes I do feel embarrassed about the number of questions we ask. If I’m completely honest? I think about the risk that the client just goes elsewhere – and a potentially lucrative client just walks out the door. I know the reality. There are so many unregulated tax professionals, practicing in less regulated jurisdictions, who have mastered the art of asking as little as possible. My team operates out of the US, the UK and Singapore among others – 3 relatively strict, well regulated, jurisdictions. 

Clients often do not understand just how much the legal and regulatory environment is tightening up. Our job is to clearly explain this – to those clients that care to listen. A couple weeks ago, the Times of Israel published an article entitled “Why are Israeli banks asking customers where their money comes from”. The article noted that Israelis with business interests abroad report being summoned to their local bank, being asked to explain how they earned their money, and, if unable to provide satisfactory answers, having their bank account closed. Israeli banks are not the only ones doing this. 

Finance professionals who are truly interested in helping their clients, must ask deep and probing questions. The consequences of not being thorough are clear to see -

1.      I think about the finance professionals, fined, imprisoned or otherwise sanctioned as part of the ongoing 1MDB investigation

2.      I think about the Swiss Asset Manager - Mirelis Holding, SA (Mirelis) which just last month, was added to the extremely long list of Swiss institutions entering into NPA’s with the US government

3.      I think about the 2017 case of Miksic v. Boeckerman Grafstrom Mayer, LLC, 2017 U.S. Dist. LEXIS 46906 (D MN 2017). A US accounting firm was being held responsible for a client’s incomplete or inaccurately filed tax return to the IRS. Apparently, the client did not properly complete the client organizer (list of questions that clients need to answer to complete a tax return).

Clearly it is often better for everyone when finance professionals stand their ground and ask prospective clients uncomfortable questions up front. Of course, finance professionals should not be unafraid to walk away from clients who are unclear about their history or who we know are willfully non-compliant.   What do you think?