The Iowa Supreme Court recently held that a financial advisor could be held liable to—not just the person obtaining the financial advice—but also to individuals who were to ultimately benefit from the financial advice, such as beneficiaries under a will. While representing an expansion of Iowa law, the Court’s holding is narrow and recognizes a duty only to “direct, intended, and specifically identifiable beneficiaries of a written instrument.”
The case, St. Malachy Roman Catholic Congregation v. Ingram, was filed on December 27, 2013.
The facts. Eighty year old Alvin Engels died in February 2006. For many years, Alvin had retained a financial advisor, James Ingram, for securities and other financial assistance. In 1999, Alvin established a Revocable Trust (with advisor Ingram as a cotrustee) and a Charitable Foundation (a corporation with advisor Ingram as a director). Advisor Ingram handled the transfer of Alvin’s assets, including Alvin’s home, into the Revocable Trust.
Advisor Ingram was involved in Alvin’s estate planning. He also eventually became the executor of Alvin’s will, the successor trustee of the Revocable Trust, and Alvin’s attorney-in-fact for healthcare decisions. In 1999, advisor Ingram became associated with Robert W. Baird & Co. (“Baird”), taking Alvin’s account to Baird. Advisor Ingram and Baird would both become defendants in the St. Malachy case.
In 2003, Alvin changed his estate plan. A Charitable Trust was created and a new will was executed. Advisor Ingram was replaced as the healthcare decision maker but was appointed Alvin’s agent under the power of attorney for financial affairs and was also named successor executor in Alvin’s new will. Attorney Marie Tarbox drafted the documents in 2003. Tarbox and her firm both became defendants in the St. Malachy case.
The 2003 will provided that plaintiff Steve Bristol (Alvin’s neighbor) would receive Alvin’s home, specific bequests to Alvin’s nieces and nephew, and that the rest of the estate went to the Charitable Trust. The Trust provided that income and principle would be distributed in the trustee’s sole discretion among plaintiff St. Malachy’s, plaintiff United Way, the American Red Cross, and to other 501(c)(3) organizations benefitting Henry County, Ill. Advisor Ingram and one of Alvin’s nieces were co-trustees of the Charitable Trust.
Advisor Ingram was “heavily involved” in Alvin’s 2003 estate planning. In fact, advisor Ingram outlined Alvin’s estate plan in three to four meetings with Tarbox before she ever met with Alvin. However, Ingram failed to disclose Alvin’s 1999 Revocable Trust to Tarbox and Attorney Tarbox was unaware of the existence of the Revocable Trust or the Charitable Foundation until after Alvin died.
As mentioned above, title to Alvin’s home had been transferred to the 1999 Revocable Trust. Attorney Tarbox was unaware of this. As to what was alleged to have gone wrong in this case, the Court summarized:
Under the  Will, plaintiff Steve Bristol was clearly a direct, intended and specifically identifiable beneficiary. The Will provided that Bristol would receive [Alvin’s] house. . . . A reasonable fact finder could determine that Bristol’s inheritance was defeated because Ingram did not tell Tarbox the home was already titled in the  Revocable Trust.
Further, because Alvin’s other assets were also titled in the Revocable Trust, that Trust controlled the distribution of assets—leaving nothing to fund the Charitable Trust. This, then, set the stage for the claim by plaintiffs St. Malachy and the United Way.
The district court granted summary judgment for advisor Ingram and Baird and dismissed the claims against them, finding that Ingram and Baird did not owe a duty to the beneficiaries of Alvin’s will or the Charitable Trust. The Iowa Supreme Court granted interlocutory appeal.
The Court’s analysis. Starting with a reference to Thompson v. Kaczinski, 774 N.W.2d 829 (Iowa 2009) that “held foreseeability can no longer form the sole basis for a court’s no-duty determination,” the Court explained that Thompson does not control in agency and economic loss cases. The Court readily found that advisor Ingram was Alvin’s agent and owed Alvin a duty. The issue, however, was the scope of the duty.
Advisor Ingram argued that he never took on the role of being Alvin’s estate or financial planner. However, the Court summarized the facts in the record as supporting a conclusion that “Ingram did far more than just recommend financial investments” and that he was acting on Alvin’s behalf “in developing and implementing an estate plan.” It mattered not that advisor Ingram was not a lawyer, “he had a general legal duty to exercise care in whatever services he did provide as [Alvin’s] agent.”
The Court still, however, needed to answer the question of whether advisor Ingram owed a duty—not to Alvin—but to his intended beneficiaries. Drawing on prior Iowa law that a lawyer and a life insurance agent can owe a duty to direct, intended, and specifically identifiable beneficiaries, the Court stated:
The present question is whether a financial planner should be treated similarly to an attorney or an insurance agent. That is, if a written instrument executed by the deceased principal specifically identifies the plaintiff as an intended beneficiary, but due to the agent’s negligence the decedent’s plan as set forth in the instrument is defeated, can the beneficiary sue? We see no reason to treat one kind of agent differently from another, so long as the plaintiffs are “direct, intended, and specifically identifiable beneficiaries.”
. . . .
[W]e hold that when an agent negligently performs his or her duties to a principal, and as a result of that negligence a direct, intended, and specifically identifiable beneficiary of a written instrument executed by the principal does not receive the benefits set forth in the written instrument, the beneficiary is owed a duty by the agent and may have a cause of action against him or her.
The Court reversed the dismissal of the claims against advisor Ingram and Baird, specifically noting that the Court did not “prejudge the outcome” of the case.
A different result was reached as to the claims asserted by St. Malachy and the United Way. Because of the “essentially unbridled discretion” of the decision makers as to the recipients of the Charitable Trust, the damage claims asserted by St. Malachy and United Way were too speculative to survive and were dismissed.