Growing Need for ETHICAL Financial Advisers in Out-of-Court Divorces
I read an interesting article from Reuters today titled “Growing need for advisers in out-of-court divorces”. You can find it here. http://www.reuters.com/article/idUSTRE6342J020100405
The general idea is that there is a growing need for Financial Advisers experienced in divorce to help individuals and couples navigating the difficult financial decisions necessary during the division of a marital estate. I agree with the premise but have real concerns with some of the statements included.
The Premise
The economics of divorce have changed and will continue to do so. The decision of WHO gets to keep the home has never been easy. Now it is also difficult to carry out the agreed upon plan. Deteriorating real estate markets and nonexistent financing alternatives have left divorcing couples faced with decisions family law attorneys are not experienced in advising. Constantly changing tax law has created financial concerns such as the Capital Loss Carryforward, Dependency Exemption, Alimony Recapture, Child Contingency Rules and Section 1041 governing tax free transfer of assets pursuant to divorce. Attorneys and their clients ignore these at their peril as they have real economic value and consequences. Federal Tax Law supersedes state Family Law so relying upon family code for guidance will often lead to inappropriate and costly conclusions. There are many examples of the value of Divorce Financial Planning and a Financial Adviser in divorce proceedings throughout my website.
My Concerns
The article interviews various Financial Advisers providing Divorce Financial Planning advice in various divorce processes. There are multiple options available to a divorcing couple as elucidated in the articles and on my website. They are Litigation, Collaborative Divorce, Mediation and Do-it Yourself. No matter which process is chosen, Divorce Financial Planning is valuable to the parties and the attorneys. In Collaborative Divorce or Mediation, a Financial Adviser may work as a Neutral adviser to the family. Here in lies my concern with the article. The Reuters article puts forward “Unlike in a collaborative divorce case, a financial neutral in a mediated divorce can take either party as a client after the divorce.” I disagree.
1. Let’s look at the definition of the word NEUTRAL –“belonging to, favoring, or assisting no side in a war, dispute, contest, or controversy”.
2. The following is an excerpt from the International Academy of Collaborative Professionals (IACP) ethical standards for practitioners. These are aspirational as the IACP does not have disciplinary authority of any kind. Key areas are underlined for emphasis.
10.1. A Collaborative practitioner who serves on a Collaborative case in a neutral role shall adhere to that role, and shall not engage in any continuing client relationship that would compromise the Collaborative practitioner’s neutrality. Working with either or both client(s) or with their child(ren) outside of the Collaborative process is inconsistent with that neutral role.
A. A Collaborative practitioner serving as a neutral financial specialist in a Collaborative case shall not have an ongoing business relationship with a Collaborative client during or after the completion of the Collaborative case, but may assist the clients in completing the tasks specifically assigned to them by the clients’ written, final agreement. Such assistance may not include the sale of financial products or other services.”
3. Divorce Mediation remains completely unregulated at this time. There is no requirement for a professional to be trained in formal course work to be a mediator. You do not have to be an attorney, financial adviser or any other discipline. There is no expectation of competence in any specific practice. There are great resources for mediation training and a few organizations that again have aspirational guidelines for training. Since there are no guidelines for training there are no guidelines for the relationship a Mediator or Neutral should have with their clients.
4. The nature of divorce with the court’s continued jurisdiction over modification of various orders requires a professional to assume their relationship continues with the family even after a judgment of divorce has been entered.
Why does the article propose that the definition differs in the context of a Collaborative Divorce versus a Mediated Divorce? The Definition of NEUTRAL remains the same in either process. I suspect it is because there are no stringent guidelines available for a Financial Advisers acting as a Neutral in a mediation setting. In the absence of guidelines we must live with our personal ethics. I believe an adviser calling themselves a Neutral during a divorce or any dispute resolution process must adhere strictly to the definition of Neutral and must always assume their job may never be done in that Neutral role.
The Certified Financial Planner Board of Standards defines a “conflict of interest” as when “a certificant’s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services.” Consider the case where the “Neutral” adviser anticipates a relationship with one party post divorce and that party must make a decision to keep the house or take a cash buy out. The adviser stands to profit from the client’s decision to take cash as the adviser can manage that cash and earn a fee for doing so. If they take the home the adviser’s opportunity to manage assets is depleted.
I have had various opportunities to work with individuals and families in a Neutral role. It is common for one party to seek post divorce relationships with an adviser so integral in the difficult transition of divorce. They are always disappointed when I re-iterate that I am precluded by my ethics as a Neutral adviser from working with either party post divorce. If advisers wish to be a part of the “Growing need for advisers in out-of-court divorces”; they need to develop clear ethical boundaries for themselves. Maintaining a relationship with one party after having held yourself out as a Neutral for a couple is the definition of Conflict of Interest in my book and runs counter to the Ethical standards of a CFP®, CDFA™, or any other discipline.
Justin A. Reckers can be reached at:
Telephone: 858-509-2329E- Mail: jreckers@pacdivorce.com Twitter: www.twitter.com/JustinCFPCDFA LinkedIn: http://www.linkedin.com/in/JustinCFPCDFA Facebook: http://www.facebook.com/Pacific.Divorce.Management
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Tags: Divorce Financial Planning, Financial Life After Divorce, Justin Reckers, Pacific Divorce Management, Post divorce financial planning, post divorce wealth management
This entry was posted on Thursday, April 8th, 2010 at 12:27 pm and is filed under Divorce Financial Planning, Neutral Financial Professional, Post divorce financial planning. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
