Ethics Discussion: When to Quit?

By David Lipkin, MSPA, FSA • January 15, 2016 • 0 Comments
  1. It seems that at many of the ethics roundtable discussions at ASPPA and ACOPA conferences, the question of abandoning a client shortly before a due date (such as 10/14) comes up. Most people regard this as both (a) undesirable and (b) a possible violation of the ethics codes. I wanted to understand exactly which precept of the Code of Conduct might be broken.

    I recently posted a question on the actuarial Google Groups discussion board, and this article will discuss some of the replies on this issue. Since it is also a business topic, I posted it on the new BMOC (business owners) discussion board, and I this article reflects some of those comments as well. 

    Most of the responses concluded that:

  • applying the Code of Conduct requires us to look at “facts and circumstances”; and
  • while it may or may not be a violation of the Code, you still could be subject to a civil lawsuit under contract law.

Code Violation?

If you terminate for an arbitrary reason, then some actuaries believe that you may violate Precept 1 of the Actuarial Code of Conduct, which provides that “an actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibilities to the public and to uphold the reputation of the actuarial profession.” In this view, without a really good reason for leaving at the last minute, you make yourself and the profession look bad. This behavior, by itself, may be a Code violation.

Some expressed concern about Precept 10, “Courtesy and Cooperation,” annotation 10-5. This has language about not “refusing to consult or cooperate based upon unresolved compensation issues.” However, this entire precept is about cooperating with another (successor) actuary, and so it doesn’t appear to apply here. (Side note: Even this annotation can become “not applicable” for cooperating with a successor actuary, if your engagement letter specifically provides for it.)

Many of the responses delved into the reasons for such an abrupt exit. Obviously, if the client doesn’t send you the data, there isn’t much you can do. It’s probably a best practice to have a documented data follow-up with the client setting forth the last day that you could receive the data and still complete the forms. 

Another area of discussion was reasonability. If the amount owed is very small, then that would probably not pass the “smell test” as a reason for quitting. But, as with late data, the best practice is to provide sufficient advance notice (“pay X by Y date, or else”) to find a replacement actuary.

Also note the importance of a good engagement letter. While it’s not a “get out of jail free card,” it can certainly be an important element of your defense. Such a letter, combined with proactive communication, is your strongest tool.

Civil Law Violation?

Some of the actuaries discussed the concept of estoppel. To my (non-legal) mind, this suggests an implied contract. If you’ve done the work every year, then there is a legal expectation (contract) that you shall continue to do so. As above, clear communications in advance about your intentions are your best defense. 

One approach is (again!) to have protective language in your engagement letter. This might say something like, “We are not considered retained until our (a) current year retainer and fees and (b) all prior years’ are paid in full.”

However, even this (apparently) straightforward solution can have its traps, including:

  • if your actual historical practice for this client had been more lenient, thus suggesting that you are not really relying upon that provision of the engagement letter; and
  • the entanglement/connectedness of the AFTAP and the valuation work. It is awkward to do one and not the other.

Finally, I want to express sincere gratitude to all of those who took their time and shared their knowledge and experience with us on the discussion forums.