Financial advisers help couples plan for life events over decades of marriage, but many couples divorce long before then. That’s when things get dicey.
If a couple divorces, what happens to the adviser-client relationship?
There’s no set answer. Some advisers sever all ties. Others might work with just one of the spouses or attempt to retain both ex-spouses as separate clients.
For advisers who act as fiduciaries (meaning they have a fiduciary duty to work in the client’s best interest), it can be tricky to keep working with both parties in a separation or divorce. Wealth managers must maintain confidentiality and avoid giving advice to one party that harms the other. If a spouse shares sensitive information, for example, it cannot be used to prejudice the other spouse because the adviser has a fiduciary duty to both sides.
Frank Bearden, an ethics consultant in Austin, Tex., suggests that advisers ask themselves, “Can I work with this person in an even-handed, clear-headed manner and not find myself conflicted?”
“It’s a awkward situation, particularly with wealthy people,” he added. “You will be pulled in two different directions.” Conflicts of interest can arise unexpectedly. If one of the spouses privately mentions how much alimony he or she is willing to pay, the adviser cannot reveal this information to the other spouse.
For advisers who attempt to retain both ex-spouses as clients, Bearden cautions that it can prove exhausting. Expect to hear one or both of them bash the other — and perhaps divulge personal details that are better left unsaid. “It can be hard to have objective thoughts when you’re entwined in their lives,” he said. “You don’t want to have all these mixed emotions.”
Advisers also can get caught up in petty squabbles. A separating couple may race to spend “their” money on ways that annoy their spouse. For instance, one of them might rush to schedule a costly elective medical procedure that the other deems a waste of money.
Bearden understands why advisers decide to cut all ties. Even if their income takes a hit from the lost business, they may come away feeling better. “They are following their best conscience,” he said. “It’s not just an intellectual decision. It’s emotional.” He suggests that they tell the divorcing couple, “In my judgment, this is not comfortable for me.”
On the other hand, some advisers level with couples and give them the power to decide whether to stick with their adviser or move on.
“You don’t want to dump someone during the divorce process,” said Sara Stanich, a certified financial planner at Cultivating Wealth in New York City. “That makes more work for them.”
Instead, she explains how she will communicate with both parties after the divorce if they retain her separately as their adviser. She also says, “After the settlement when we divide your assets, you may want to choose another adviser.”
“The important thing is to clarify your concern,” she said. A certified divorce financial analyst, Stanich adds that finalizing the divorce paperwork can drag on for many months, making it more challenging for everyone.
“During that time, they may still both be my clients,” she said. “Sometimes it’s like, ‘Listen, I have to avoid conflict of interest. I have financial information on both of you.’”
Solo practitioners or advisers who work at small firms may find it more difficult and draining to keep working with divorcees. It’s easier when the firm has a stable of financial planners on hand.
Kelly Nilsson is a certified financial planner at San Diego-based Brava Financial. Previously, she worked at a larger firm in which a couple divorced and both ex-spouses stayed on as clients. Having a team of in-house advisers helped ease the transition.
“We had to be scrupulous that they are two separate clients and we do not talk about them with each other,” she recalled. “They would share things about each other in our meetings. But that was a one-way street. We had to maintain strict confidentiality.”
Reflecting on her experience, Nilsson sees why some advisers might opt to end the relationship with both ex-spouses rather than keep both of them in the fold.
“There’s a real burden on the adviser to remember to keep things separate,” she said. “It can be a real minefield.”
More: Planning to remarry after a divorce? 6 tips to protect your financial future
Plus: ‘It’s driving them crazy’: Trying to get divorced today is a financial mess