June 12, 2015
First step: Establish open communication with and among both parties
There are plenty of phone calls financial advisors don’t like to get from their clients. But one in particular can be especially difficult: divorce.
For many advisors, hearing that a client’s marriage is ending unleashes a series of concerns, ranging from worries about a client’s emotional well-being to the ethics of continuing to work with both parties to thorny business challenges should one party take its money elsewhere.
Either way, it is clear from that point on the relationship between client and adviser will be different.
“As soon as we hear word or get wind that they are thinking about divorce, the relationship really immediately changes,” as standard financial planning generally comes to a halt, says Amy Weldele, a senior wealth manager with Budros, Ruhlin & Roe in Columbus, Ohio. The firm manages $2.1 billion.
One of the first things to tackle after being informed of an impending divorce is open communication with and among both parties, Ms. Weldele says.
“We take the approach of wanting to disclose full information to both parties, as opposed to a more confidential situation,” she says, adding that over the years she has had a few clients go through the process in a fairly collaborative fashion, keeping an open relationship when it came to communication.
For Jorie Johnson, a financial adviser in Manasquan, N.J., the communication discussion, and what financial information would likely be shared between the parties, is disclosed early in the adviser-client relationship.
“I point out the joint-party paragraph in my contract and tell them that if their marriage starts to go south, keep in mind that either one can talk to me on behalf of the other,” says Ms. Johnson, whose firm, Financial Futures, manages $60 million. “I try to be very up front from the very beginning so there aren’t any surprises.
Next up, for many advisers, is determining whether it is possible to continue working with both clients.
“Oftentimes we can offer that one spouse work with a different adviser or team at the firm, so they’re still a client but they have a separate team,” says Ms. Weldele, the Ohio-based adviser.
The same is true for John Gugle, a Charlotte, N.C.-based financial adviser, who co-owns Alpha Financial Advisors with his wife, Ann.
“Our policy is to try and continue working with both spouses separate from one another if possible,” says Mr. Gugle, whose firm oversees $122 million in assets. In practice, this can mean that one spouse will work with him, and the other will work with his wife.
“We have to be really, really mindful of privacy, and we won’t mention to one spouse what’s going on with the other’s finances,” Mr. Grugle says. “It is of utmost importance to maintain a level of trust with each spouse individually in order to instill confidence in them that you have their best interests at heart.”Of course, sometimes it just isn’t possible to continue the relationship with one, or even both, of the spouses.
When Bryan Hancock learns that a client couple is getting divorced, he says he immediately sends them a list of issues he will need to discuss with them, and then takes a few days to digest the news so he can determine, with them, the best way to proceed. “If the situation involves someone I know well... I have to analyze my own deep feelings about it, so it always helps to talk with someone else, like another trusted adviser,” says Mr. Hancock of Timberchase Financial in Birmingham, Ala., which manages $60 million.
Unfortunately, he says, sometimes the answer is that he has to resign from working with both spouses given the conflicts of interest inherent in the situation.
He will work with the couple to unwind things, while informing them that both spouses have full access to all of the information he has, and that he can’t hide anything from either party.
Says Mr. Hancock: “We can’t objectively, as a fiduciary, advise this client anymore and sometimes we just have to resign.”