Due to the nature of the profession, advisers are privy to many of life’s unexpected events, with a client’s (or clients’) divorce being no exception.
In the event of a divorce or separation between two clients, advisers can face ethical dilemmas. For Fradley Advice’s Nathan Fradley, one of the largest is demonstrating to clients that you as the adviser are not “choosing sides”.
“Standard 3 of the code of ethics requires that ‘if you have a conflict of interest or duty, you must disclose the conflict to the client and you must not act’,” Fradley told ifa.
“In practice there is a short window and some limited circumstances whereby the goals of what advice is provided on could be considered aligned.
“However, advisers should be very wary they are not benefiting one member of a couple be that with time, energy or the actual advice provided.”
Fradley recommended that in any case of an adviser feeling like they are favouring one client over another, be it because they are easier to work with or more engaged in the process, they need to refer on.
“It is very difficult to act in both parties’ best interest where they are in a mediative or adversarial situation, so refer out and do so early,” he said.
Natallia Smith, founder and principal adviser at TruWealth, also echoed this sentiment.
“It’s essential to stay neutral and, early in a separation, choose which client you will continue to advise. The other party should be referred to an independent adviser, ideally at another practice,” she told ifa.
“Set this expectation upfront, document the decision, and (with consent) coordinate respectfully with the other adviser to keep the process fair and calm.”
Both Fradley and Smith also stressed that advisers are not managers of their client’s relationships and that the primary role should be to recommend strategies that work best for the client.
“We are not running lead on a separation, that is usually the job of a family lawyer; our job is to support the process, depending on where they are.”
Smith added: “Our role as advisers is to bring clarity on the financial options, trade-offs and next steps, not to advise on the relationship.”
Though an adviser’s primary role is to not manage the emotional state of their client in this situation, Smith and Fradley highlight that approaching these interactions with empathy is still important.
For Smith, this means being explicit in why certain decisions are being made, such as referring one client to another adviser.
“Be open and honest: explain that to protect both parties and their outcomes, it’s best each person has their own adviser. If it feels right to act now, refer at that point, document the decision, and manage a respectful handover.”
Fradley highlighted that this might also require a greater level of patience with a client when going through a separation, and that advisers should work to the pace clients set.
“Nothing happens fast. Client energy levels and motivation ebb and flow. Their mental capacity is reduced, as the process can feel unyielding and always weighs on them.”
“They can be unusually disorganised, forgetful – this is not a statement of the client or your value to them, it‚s just that planning for or even thinking of future is very difficult when you are in survival mode.”
In this approach, Smith elaborated, it is still important to set clear boundaries, such as how communication will be undertaken and identifying to clients that the scope of the relationship will not go beyond advice.
“Lead with empathy and support but keep firm boundaries so everyone feels safe and the process stays fair,” she added.
