While the COVID pandemic was one of the topics that dominated the news cycle throughout 2020. Although the virus disproportionately affects our elderly and vulnerable adult population, there may have been one silver lining. It helped draw our nation's attention toward hazards associated with aging.
It may also have served as a call to action for those who care for America's senior citizens. With renewed interest in eldercare issues, anyone who serves retirees has both the authority and the platform to educate loved ones and take steps necessary to help protect those who are in the advanced years of their lives.
As a successful investment professional, you are at the nexus of this opportunity.
Why it Matters for You and Your Business
The financial well-being of your clients is paramount. Whether you serve clients as a fiduciary or comply with the best interest obligations outlined by the SEC is beside the point. You may feel as invested as your clients in their success, since your revenue and business growth may be highly correlated with their portfolio performance and growth.
These are among the many reasons you take a keen interest in helping clients manage their wealth and prepare for the future they want. And it may be why you may feel a sense of pride and accomplishment when clients celebrate important milestones in life. You know you played a role in helping them achieve what is important to them.
If you look at your book of business, some of your most valued clients may also be some of your older clients. For many of your older clients, their portfolios represent years of hard work and careful investing. In addition to providing a sense of financial security and a source of retirement income, their portfolios may represent a financial legacy they wish to be remembered by someday.
Financial Strategies for Aging Clients - Physical and Mental Considerations
When helping your clients prepare financially for different stages of their lives, you may use the "go-go, slow-go, no-go" model to help them understand how their spending habits will change over the course of their retirement years. This, of course, is due in large part to physical changes related to aging that people can expect to experience as they get older.
Equally expected to the decline in physical abilities that come with age, and of equal significance to both quality of life and financial wellbeing, is the decline of mental abilities that frequently happen. Yet the cognitive changes commonly associated with aging are often less obvious to others and routinely require more careful observation to detect. And the potential financial risk as a result can be insidious.
Indeed, as Americans live longer, their risk of experiencing a cognitive decline increases. Advances in health care and technology make living into ones 80s and 90s possible for many clients. Yet with longevity comes greater risk of developing a cognitive disorder, such as dementia.
Alzheimer's Disease is the most frequently diagnosed form of age-related dementia, representing 80 percent of cases. Currently, 5.3 million Americans are living with Alzheimer's or other memory disorders, and that figure is expected to double by 2040, according to the American Alzheimer's Association.
Another way of looking at these numbers is that one in ten Americans over age 65 have Alzheimer's Dementia. One out of three over age 85 die of a dementia-related disease. These may be alarming statistics, when compared to the average age of your clientele and the frequency with which dementia strikes.
Risk Management for Dementia and Alzheimer's
According to a study recently published by RBC Wealth Management, as well as a special report for financial professionals and their clients that was provided to RBC Clearing & Custody, 80 percent of caregivers for people diagnosed with dementia reported some form of financial mismanagement.
Knowing when a client is no-longer competent to make financial decisions can be difficult to determine. But when he or she is experiencing the effects of dementia, waiting too long to get their loved ones, your legal or compliance department and/or the law enforcement authorities involved can have devastating financial consequences.
In many cases, dementia comes on slowly and by the time a family acts, bill payments have already been missed, taxes have gone unpaid and money may have started going unaccounted for. Of course, it is important to prevent any of this from happening. But how can you tell if someone is suffering from dementia? Following are four financial-related warning signs that can signal diminishing capacity.
In addition to watching for these "red flags" in your routine supervision of your clients' accounts and investments, you may want to share these precautionary guidelines with your elderly clients and their adult children, if possible.
Red Flag One: Changing Routines
One of the first things to pay attention to is to whether someone is having trouble with their routine financial tasks, such as:
• Mail piling up, inability to organize bills and receipts.
• Difficulty handling money or paying bills, paying the same bill multiple times, or missing a payment.
• Forgetting to pay taxes.
FINRA requires all financial professionals to ask clients for a trusted contact and to document this information in their account records. Unlike a power of attorney, a trusted contact cannot control any finances. Their role is simply to look out for their family member.
Red Flag Two: Too Many Requests
A second common problem associated with dementia is memory loss. This may manifest itself in several ways, like:
• Unusual requests or repeated requests for the same information.
• Frequent username or password resets.
• Inability to make basic decisions, needing repetitive explanations.
• Difficult to reach and has been denied access to his or her money.
Everyone experiences moments of forgetfulness from time to time. However, if one or more of these memory issues start happening on a regular basis, it may be time to speak to a trusted contact. If your client experiences episodes of confusion, that may also be a cause for concern as well.
Red Flag Three: Unexpected Relationships
An unexpected change in one's relationships is a common warning sign among people suffering from dementia. This can include:
• A sudden change in a financial relationship with financial professionals or a financial institution.
• Unexplained changes to financial accounts, mailing address or passwords.
• New interest in a phone solicitor or unusual email activity.
• New or unusual charitable giving.
On the financial side, if a client is discussing financial matters with a new family member or new "friend," then that may be reason to worry. In some cases, the person doing the scamming is not a stranger. It can be caregiver or even an ill-intentioned child. It is tough to figure out that someone is being taken advantage of by a person close to them, which is why financial professionals and family members need to be diligent.
If you see something out of the ordinary, like someone claiming to be acting on your client's behalf trying to sell securities or liquidate an account, report it according to your firm's policies and procedures. Then follow your firm's policies and procedures to inform the trusted contact and other family members, if possible.
Red Flag Four: A Change in Risk Profile
One's investment risk rarely changes in old age. So, if a client with a conservative portfolio says to you that he or she wants to go all in on stocks, or invest in a risky start-up company, then that could be a warning sign. Other things to watch for include:
• A sudden or escalating change in investment style or increase in credit facilities or loans.
• Unexplained interest in riskier investments.
• Sudden or increased trading or spending patterns or abrupt changes in financial assets.
• Sudden lack of activity, indecisiveness, or disinterest.
Any of these red flags may be a cause to escalate for help determining whether these behavioral changes indicate that your client may no longer be competent to make financial decisions for himself or herself.
Five Steps for Financial Professionals
These red flags may not seem troubling when they show up one-at-a-time or they happen only occasionally. People forget passwords, they often have a stock they think about buying at some point and so on. But since these are higher order brain functions, they are some of the first signs that someone may be suffering from dementia.
That means when these warning signs begin to multiply or happen with regularity, it may be too late to prepare. The following steps are offered to help financial professionals and clients be proactive about avoiding the potential financial pitfalls that are typically caused by dementia.
Plan ahead, especially when there is increased risk (age, injury, gender or hereditary factors). Help your clients understand the costs and the care journey. Incorporate a long-term event scenario into your planning process to help them better see the personal implications.
Consider supplemental insurance, including long-term care options. There are a range of protection strategies to better prepare clients for unexpected health care expenses.
Check that key legal documents (power of attorney, health care directive and will) are in order, so your client's assets are properly titled, and their beneficiary designations are current.
Consider the benefits of establishing a trust and using a professional trustee service, especially in the absence of a competent personal executor or family member.
After a diagnosis, act swiftly to help the family avoid financial missteps, abuse, and liability. A plan for transitioning financial and legal capacity should be put into motion.
Infinity Financial Services is a national, independent Investment and Wealth Management firm, founded with a vision: help enterprising financial professionals to grow truly independent, successful practices, leveraging leading-edge technologies and firm support. Based in Oakland, California, with branch offices around the U.S., Infinity's financial professionals offer an array of asset management, brokerage, insurance, financial planning, benefit plan, insurance, and risk management services. This article provides information for investment professionals. It is not intended for use by the general public.