Advisors know the many challenges that come with clients’ increased life expectancy. Yet the possibility of diminished intellectual capability may seem outside their normal purview.
It shouldn’t. If you want to help your clients prepare for the future, experts say you can’t ignore the unpleasant possibility of their age-related cognitive decline.
“Financial advisors must be prepared for the challenges presented by an aging client base,” said Bill McCollum, senior vice president and wealth advisor at Eagle Financial, a Wealthcare company in Shreveport, La. “The solution is likely non-financial.”
Advisors can get ahead of potential problems, though, with careful planning, advisors say.
Matt Pastor, an advisor at Johnson Brunetti in Wethersfield, Conn., said his firm has procedures in place to discuss possible declines in health and/or cognitive capacity with every client that comes in. “[We] continue to discuss it throughout the relationship,” he added. “Part of retirement planning is planning for the ‘what if’ scenarios.”
It’s an idea echoed by others.
“Diminished capacity should not be addressed on an ad hoc basis,” said Steve Parrish, a St. Augustine, Fla.-based attorney and co-director of the American College of Financial Services’ Center for Retirement Income, where he is also an adjunct professor of advanced planning. “There are a number of tools available that can be executed in advance, while the client still has capacity. If that client experiences diminished capacity later, these tools can help manage the situation.”
Erin Wood, vice president of financial planning and advanced solutions at the Carson Group in Omaha, Neb., agreed. “The best time to have conversations with clients about possible cognitive decline is long before it’s a concern,” she said. Develop a “cognitive decline plan,” she suggested, with “action steps” to take if or when there is cause. “The worst situation is to have no plan at all."
Powers Of Attorney
One vital part of such plans is documenting powers of attorney. There are different types.
A medical power of attorney enables a trusted confidant to make health-related decisions when the client is unable to. A financial power of attorney, which can name the same or a different person, works in similar ways but typically goes into greater detail about exactly which types of financial decisions can and cannot be made by the designated person. The power to pay bills, for instance, is standard. The power to donate to a charity might not be. The rules vary by state.
Powers of attorney can be “durable,” meaning they can go into effect immediately and in perpetuity, or “springing,” in which case they only become effective after a specific event happens, such as incapacity.
In addition, some advisors insist that clients identify a Social Security representative payee. Social Security doesn’t typically accept powers of attorney, but clients can designate in advance up to three people to handle their benefit payments if the need arises. Otherwise, the federal agency will appoint someone.
In addition, clients should name a trusted contact, who might or might not be the person with powers of attorney. “Advisors need to have a trusted contact for all older clients,” said Tom Salvino, CEO of Performance Wealth in Hinsdale, Ill. “That person knows and cares about the client.”
Finra, in fact, requires firms to make “a reasonable effort” to obtain contact information for a trusted person for every noninstitutional client. Rule 4512 describes the circumstances under which a client’s confidential information can be shared with this contact.
Blaine Butcher of Wealthcare Advisory Partners in Scappoose, Ore., recommended checking in with all trusted contacts and designees annually “to remind them of the responsibilities of their role.”
For some, these preparations are simply part of estate planning. “Ensuring the currency of our clients' estate documents is a priority,” said Corey Briggs, wealth manager at Plaza Advisory Group in St. Louis, which is affiliated with Steward Partners. To him, this includes wills, trusts, advance medical directives, beneficiary designations, powers of attorney, and possibly even predesignating a preferred legal guardian. “This proactive approach safeguards against potential challenges,” he said.
Barbara Archer, a partner at Hightower Wealth Advisors in St. Louis, concurred. “It is imperative that all clients have legal documents in place,” she said.
Stephanie Forrester, assistant vice president and advisor at Wealthspire in Madison, Wisc., said clients should have these documents “regardless of age.” Having them, and updating them periodically, “establishes some safety nets,” she said.
An Uncomfortable Topic
To be sure, discussing mental capacity can be uncomfortable.
“Parents can be extremely sensitive to comments from their children about their possible cognitive decline,” observed Claire Mork, director of financial planning at Edelman Financial Engines in Westminster, Colo.
Denial and avoidance are common. But that’s precisely where an advisor can help. “Advisors can act as a neutral nonfamily member that can serve as the intermediary,” she said.
At other times, however, the subject might arise naturally—such as when advisors first detect trouble. “Advisors are usually in regular contact with their clients and often notice subtle changes in behavior,” said Taylor Custis, managing director and trust counsel at Fiduciary Trust International in Atlanta. Family members, she said, often miss the early symptoms—or are unwilling to see them.
When broached, the discussion should be calm and compassionate. You’re offering to help. ”Usually clients will be happy to have the support,” she said.
Don’t Play Psychologist
But advisors aren’t mental health experts.
“Be cautious about making a diagnosis without the medical credentials,” warned Kelly Mould, an attorney, senior vice president and wealth fiduciary advisor at Johnson Financial Group in Racine, Wisc. “Mere old age, eccentricity, or physical disability are insufficient for a finding of incapacity.”
Robb Armstrong, vice president and senior trust officer at Arden Trust Company in West Palm Beach, Fla., noted that typical symptoms of cognitive decline can include “forgetfulness, repeating oneself, getting lost in familiar places, and difficulty comprehending things that the client never struggled with in the past.”
Of course, the warning signs might be more serious, such as “frequent driving accidents, medication errors, and impulsive behavior,” said Mallon FitzPatrick, principal, managing director, and head of wealth planning at Robertson Stephens in New York. “These types of changes can translate into erratic and reckless financial decisions.”
If your client is suddenly buying or selling large amounts of securities, overpaying credit cards, or making huge financial gifts, he said, act immediately. Contact your compliance department before reaching out to the client’s loved ones.
It may become necessary to consult legal counsel or a local elder care agency, he said.
Protecting Older Clients From Scams
At the same time, try to protect clients from fraud.
“Because financial exploitation is a huge concern for aging clients, regular review of financial accounts and daily transactions is essential,” said Jaime Eckels, a partner at Plante Moran Financial Advisors in Auburn Hills, Mich. “I personally review withdrawals on my clients’ accounts daily.”
Sometimes she also recommends a credit monitoring service or freezing the client’s credit.
“The best tools are your eyes and ears,” said Harriet Chase, a financial planner at Aspen Grove Wealth Management in Belgrade, Mont. “If I notice a normally efficient, organized client suddenly has a messy home and unopened bank statements on the table, those may be signals that things are changing.”
As seen in Financial Advisor