Kitces and Carl - Real Talk for Real Financial Advisors Mitigating Risk From (Litigious) Clients When Your Advisor Team Grows Beyond You: Kitces & Carl Ep 187
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Apr 2, 2026 A discussion about protecting advisory firms from legal risk as teams expand. They cover insurance strategies and budgeting for small claims. They talk about when to require client sign-offs and the importance of contemporaneous recordkeeping. The conversation also explores hiring for emotional skills, client screening to avoid litigious people, and keeping a make-good reserve for inevitable disputes.
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Use Threshold Signoffs For High Stakes Actions
- Use targeted sign-offs only for high-stakes actions rather than signing off on everything.
- Michael Kitces suggests thresholds (e.g., large capital gains or big liquidations) to require client acknowledgment to limit paperwork overload.
Client Threatened Lawsuit Over Signed Trade Consent
- Alan told Kitces a client threatened a lawsuit after claiming they hadn't approved a $30,000 tax-triggering sale.
- Despite signed capital-gains analysis, the client alleged insufficient details and pushed for settlement because litigation costs favored them.
Bigger Client Base Makes Lawsuits More Probable
- As a firm grows, litigation risk scales with client count due to increased surface area and the small share of litigious clients.
- Carl Richards and Michael Kitces note mathematical inevitability: more clients make experiencing a lawsuit more likely.