Losing a Client to a New Actuary
Editor’s note: This is the first of a two-part article about the best and worst practices in working with the new actuary when you are the old actuary. Part 2 will appear in the October ACOPA Monthly.
It’s Friday at 4:59 p.m. and you see the following email from your client: "Dear Mr. Actuary: You stink (or insert other applicable word). You’re fired. Please send our files to the new actuary."
Depending on the situation, your reaction might be, “That’s great. Some other sucker is stuck with this guy,” or “I had no idea. What happened?”
You can sulk, and blame the stupid client (or your incompetent staff, pushy boss, nagging spouse, the weather — take your pick). It doesn’t matter. The client isn’t going to change his mind. So, your task now has changed. Your task is now to ensure a clean transition. You are a professional.
So what, you say. I don’t care. He’s gone. I don’t have the time for this. I’ve got other clients; clients who are going to pay fees. It’s the new actuary’s problem. I’ll blame the stupid client, anyway. Good riddance.
Over the weekend, you have a chance to reflect on your alternatives.
As a starting point, understand the dynamics of the takeover — there are four possibilities:
Old Actuary (You) New Actuary
You are the old actuary. You can choose to be either professional or uncooperative. You may or may not know what the new actuary will be like.
1. You are professional and the new actuary is professional. No problem. There might be some differences, but these can generally be resolved.
2. You are professional and the new actuary is uncooperative. The new actuary might be overly demanding, either for documents, data or timing. By being professional, you might wind up encouraging the new actuary to be more reasonable. If not, respond the best you can, remind him of the limit of your obligations under the various codes of conduct, and perhaps get the client involved. (The client may not want to get involved, but it does affect him. One of your objectives is to make sure that the client knows that you are meeting your responsibilities under the various codes of conduct, and that you should not be blamed for problems with the transition.)
3. You are uncooperative and the new actuary is professional. By being uncooperative, you might be unnecessarily making things difficult for the new actuary. The new actuary might make his requests more formal; this can make it more difficult for you if you continue to be uncooperative.
4. You are uncooperative and the new actuary is uncooperative. A recipe for disaster, with the soon-to-be very upset ex-client in the middle. This can get ugly, possibly involving attorneys, the ABCD or the Joint Board. (Refer to the appendix below.)
While you cannot control the new actuary, it’s still your choice on how you should act.
Get Some Background
Do you know the new actuary? Does he have a good reputation, or a bad one? Or, more likely, you may not know either way, but you will find out fairly quickly whether he is professional or uncooperative.
Talk to the new actuary. You might be able to get a sense of what his understanding of the ex-client’s situation is. Discuss his needs, expectations and timing, especially if there are unresolved issues with the ex-client.
Then manage the new actuary’s and the ex-client’s expectations during the takeover process.
Initial Data Response
__ You can respond promptly to the new actuary’s requests — even create separate pdfs or spreadsheets for each document requested. If the desired response timing conflicts with other priorities, you’ll let him know and respond as quickly as possible.
__ Or you can stall, delay, give partial responses, or not respond at all. You can give him hard copy, or unsigned documents, maybe in a single, large pdf containing a dump of everything that you have. Let him figure it out. You send incomplete and piecemeal responses; after all, you’ve got better things to do. Better yet, you’ll delegate this junk to junior staff; that way, you don’t even have to deal with it.
Which of these are you?
How to Resolve Questions and Differences
__ You can help the new actuary get up to speed. You know what information you would like to have if the situation was reversed. You already know what’s weird or unusual about this case; you can answer his questions before he asks them. You can explain your methodology and what you relied on from the client.
__ That’s his problem. Let him spend the time to figure things out. Besides, you’ll bill the ex-client for your trouble.
__ If your company’s policy is to charge reasonable fees in advance for transition work, you clearly explain this to the new actuary. You’re up-front with the new actuary. That way, he isn’t wondering why you haven’t responded. In fact, he can probably work with the client to move this process along.
__ The client still owes for outstanding work. So you bill him a very large retainer for transition work. Besides, if the retainer exceeds the actual transition work required, you simply apply it to the outstanding invoice. (Be careful. Doing this could be in violation of the various codes of conduct, and get you an introduction to ACOPA’s disciplinary process. Refer to the appendix below.) In the meantime, let the new actuary try to get the information on his own.
There may come a time where something that you did is unavoidably (and maybe even undeniably) wrong. Mistakes happen. It’s how you resolve them that often determines the consequences.
__ Is your objective to stand your ground and be difficult? If you are really wrong, do you really want to defend against costly litigation or an ABCD or Joint Board complaint? Do you really want this to be ugly for you? (Take another look at the appendix below.)
__ Or is your objective to solve the problem as easily as possible? Discuss this with the new actuary or perhaps the ex-client. What are the consequences of the mistake to the ex-client? Is it merely preparing an amended valuation and filing? Must it be corrected through EPCRS? Are excise taxes required? StilI, this is a lot less expensive than fighting, particularly if it’s your mistake.
Risk to the Actuary
As actuaries, we are trained to manage risk. The risk that you are managing in this situation is the risk to you — mainly, the risk to your reputation or the risk of having to respond to an ABCD or Joint Board complaint.
So, let’s analyze this risk.
__ You could choose to make it difficult. You could play hardball. You could be uncooperative.
Best case scenario: You’ve just made an enemy whom you will never deal with again. Worst case scenario: You’ve just made an enemy when you need a friend.
Let’s say you are very uncooperative. How will you respond to an ABCD or Joint Board complaint? (See appendix.)
Let’s say your transition retainer is obviously so large as to cover outstanding unpaid fees. How will you respond to an ABCD or Joint Board complaint? (See appendix.)
Let’s say it turns out you have made a technical mistake that results in rework to correct. How will you respond to an ABCD or Joint Board complaint? How will you respond to the ex-client (or his attorney) for damages? (Open checkbook.)
How will you respond to your referral source when this is out in the open?
__ Or you could choose to be professional and cooperate.
The likelihood is that the transition will be completed promptly and you can focus your efforts on ongoing clients. If you wind up taking over work from the same actuary in the future, he may very well be cooperative in return.
If mistakes are uncovered during the transition, the new actuary is likely to work with you to resolve the matter with as little fuss as possible. No need to make a big ugly deal that will cost you time, aggravation and possible sanctions later on.
The choice is yours.
Next month, the opposite situation: You are lucky enough to take over a new client from another actuary. Or are you?
The ARA Code of Conduct, the Actuary’s Code of Professional Conduct, Circular 230 from the IRS and the regulations by the Joint Board for the Enrollment of Actuaries provide guidance on the performance of actuarial services.
As it applies to takeover situations, actuaries are required to act with integrity, courtesy and cooperation, and are generally prohibited from withholding of records. You should become familiar with this guidance, particularly with the specific requirements and exceptions.
Remember, allegations of violations of the Codes of Conduct will be judged by your peers. Allegations of violations of Circular 230 will be judged by the IRS. Allegations of violations of the Joint Board’s regulations will be judged by the Joint Board.
If you are considering taking actions that are uncooperative, you should consider how you would respond to an allegation of violation. If you are working with another actuary who is being uncooperative, you may wish to bring these requirements to his attention.
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