Lots of sellers of products are trolling for new clients, new prospects and older investors with substantial assets. They use a proven technique that could trap your client. You can educate your clients early and often about the technique, which is the “free meal educational seminar”. These seminars are not, by themselves, a bad thing. Perhaps you’ve even put one on yourself, or considered doing so. But too many unethical people are using these to sell inappropriate investments to older people. The annuity scams are notorious for this checker informative hints.
Two Things Professionals Can Do About Elder Financial Abuse
It’s vicious and pervasive. It’s growing. It has been called “the crime of the century”. Elder financial abuse, according to a study by True Link Financial, costs seniors in the U.S. over $36B a year. But can financial professionals do anything about it? We say definitely yes.
Most of us have encountered this kind of opportunistic crime at some point, among family, neighbors or friends. When we at AgingInvestor.compresent to groups of professionals we ask how many have had witnessed this kind of abuse with anyone known to them. Almost every hand goes up. The question is, what can you do about it?
Many professionals are either hesitant to get involved because they think privacy concerns should stop them, or they want to take action but are unsure about what to do. Let’s clear away those concerns now.
First, remember that when your client gets ripped off and cash is drained out of the account you manage, you are losing fees for those AUM. If that isn’t incentive enough to be involved note that NASAA has already developed model rules which will require that you report abuse to authorities. Those are likely to become mandates soon enough.
Let’s look at two basic steps any professional can take now to improve your response and protect your clients from financial abuse.
Get third party contacts on file
One, you need to get from your retirement-age clients the names of several trusted others whom you can call in the event that you see red flags that abuse could be going on. Remember that family members are the most frequent abusers of aging folks. Perhaps that favorite one, Sonny Boy is taking advantage of a vulnerable parent or other relative. Be sure one of the contacts you get from your clients is not a family member, but a trusted friend, colleague or professional. Age makes all of us more vulnerable to financial manipulation for many reasons. Next time you review an older client’s portfolio, get this necessary information about whom to call if you get concerned and keep it on record.
Get permission from your client to call the third parties under certain circumstances
Two, you need not consider privacy rules a barrier if you have your client’s permission to contact the designated third parties he has identified. A legally sufficient privacy document will help you. This is an area where both legal and compliance departments should assist you to get the right paperwork in order. At AgingInvestor.com, we developed just such a model document, a product we offer to overcome the confidentiality barrier to taking action. It’s part of a senior-specific policy. And you can do it in-house on your own too with legal input. Get one done for every aging client. It resolves the question of giving private information to the designated third party. You will have the ok to act when you need to.
Caution: we do not recommend that you use an informal letter to for your client to give up the right to privacy. Consider that in our society, we use things like a durable power of attorney to give up the right to solely manage one’s finances, and an advance healthcare directive to give up the right to make end of life or care decisions alone. We don’t use mere letters for these things. You need papers that are standardized, formal and that will stand up to scrutiny should anyone question them.
Surely you do not want predators to take advantage of your clients, particularly when they suffer from any cognitive decline. That increases their vulnerability. And the integrity of their portfolios is enhanced by your own vigilance over them as they get older.
The Inner Workings of Clients’ Financial Decision-Making Ability
Whether you have a lot of older clients or just an occasional one, it’s critical for every financial professional to understand whether a client can safely make decisions about money. It might seem straightforward when your client is able to carry on a conversation, talk about current events or make a joke. You assume she’s fine, but it’s not that simple. Conversational ability can mask a true disabling brain condition we call dementia. It does not reveal itself easily, particularly at the earliest stage.
The insidious onset of Alzheimer’s disease or other dementia can sneak up on a client and affect the ability to exercise judgment about finances. To help your clients, you need to know the red flags of diminished capacity, a basic skill anyone can learn. You can get a free checklist to help your do that at AgingInvestor.com. But beyond that, it is critical to understand just how complex our capacity to make safe financial decisions is.
Research shows us that with the most common form of dementia, Alzheimer’s disease, financial capacity is moderately impaired even at the very beginning of the disease process. By the time a client gets to the middle stage when symptoms are more obvious she is already severely impaired in her financial capacity. No one should be making independent decisions about finances with severe impairment of this capacity.
This financial ability is defined as “the capacity to manage money and financial assets in ways that meet a person’s needs and which are consistent with his/her values and self interest.” It is broken down into nine areas or “domains”. These include cash management, basic money skills, bill payment, and financial conceptual knowledge. The ones an advisor is most likely to see and assess are knowledge of personal assets and estate and investment decision-making.
You may not discuss with your client whether he understands what a money market is but you will be ethically obligated to discuss the pros and cons of various suggested investments and the effect they will have on your client’s overall financial picture. This is the area where older clients with impairment will not be able to process the information you are offering them. When they are affected by brain disease like Alzheimer’s (over 5.5 million people are diagnosed now, with that number expected to rise dramatically) they will not be able to “get it”. You are on dangerous ground if you proceed to recommend or sell any financial product in the face of serious doubt about a client’s financial capacity.
Granted, many financial products are complicated and the average person may not grasp all the nuances. But when you believe your client is probably impaired and cannot understand any carefully worded explanation you give, you are exposing yourself to liability by going ahead with transactions for that person.
How could this get you in trouble? All of the regulatory agencies want you to keep your older clients safer and they have issued guidelines for how to do that. All of them want you to know the red flags of diminished capacity. Financial capacity is the most complex of the kinds of capacity a person can have. If you do not involve a third party to assist the client with financial decisions, you risk a bad outcome and regulatory prosecution. You also risk the heirs coming after you in civil lawsuits, charging that you should have known what everyone else knew at the time, that their mother/father was impaired and you should never have sold that, done that or caused the bad outcome.
This is a very real problem among financial professionals– the failure to recognize and act on the warning signs of diminished capacity. If you are managing a retirement account for that client, beware even more. Acting in the client’s best interest means that you need to understand when the client’s financial decision-making capacity is going downhill.
This article just touches on the complexity of financial capacity. Everyone deserves to have a deeper understanding so you can avoid prosecution or questionable accusations about your recommendations or the client’s investments. When the investment an impaired client went for at your suggestion loses money, you can bet someone will blame you if they can. Don’t set yourself up. Don’t make it easy for them to attack you.
The way around this risk of working with an impaired client is to have your client’s permission to involve a trusted third party as a surrogate decision maker for all financial transactions. How you get that permission is the subject of another article and it needs discussion. In the meantime, take a deeper dive into the nuts and bolts of financial capacity in Succeed With Senior Clients: A Financial Advisor’s Guide to Best Practices, available here. Chapter Two explains all you need to understand about the components of financial capacity. And the privacy question and how to get that trusted other involved is answered in the book too.
Attention Financial Advisors:Do You Have A Colleague With Cognitive Impairment?
The financial services industry frequently shows concern about the problems of longevity and aging clients. Cognitive impairment, diminished capacity and dementia get air time with various solutions, mostly vague, offered by industry insiders. But one problem is not being addressed: the professional herself with cognitive impairment.
It’s time to look at this as a real risk, not some unlikely possibility that can easily be taken care of by a succession plan for the professional’s business. Dementia is a complicated disease. It sneaks up on people, with the early warning signs of short-term memory loss, followed by increasing difficulty with reasoning and judgment. If we had not witnessed this at AgingInvestor.com with impaired professionals ourselves, we might be fooled into thinking that professionals had figured out how to address it. Simply put, they haven’t.
Let’s look at the notion that all you need is a succession plan for your business and there will be no problem if you develop cognitive impairment yourself, or someone in your organization does. What’s the flaw in this? It is that many people with early Alzheimer’s or other dementia do not recognize that they are impaired. This phenomenon is called anosagnosia, an inability or refusal to recognize a defect or disorder that is clinically evident. Ironically, the part of the brain that reasons and analyzes is so affected by the disease that it is not able to process the information about one’s own impairment.
How this plays out is that as a person ages and becomes more at risk for dementia, some will surely fall victim to brain disease. The odds are at least one in three by the time we reach age 85. The risk doubles about every 5 years starting at age 65. So some financial professionals are going to develop dementia and some will not know that they have any impairment. So they keep working. Others around them are afraid to raise the topic when alarming signs first appear. No protocol exists to ease a person out of the role to which they are accustomed, particularly when they tell you they’re feeling just fine, thank you.
Busting The Myths
Myths exist. The first is that a financial professional, whether managing money for clients, selling products or addressing their taxes and accounting, will know that he or she needs to retire when the time comes. This is not what occurs. Many folks who have a good book of business and enjoy what they do will not look to retire by a certain age. They keep working, and consequently when they are impaired they put every client at risk.
Another myth is that somehow the doctor, the family or someone else will advise you when you have dementia and you will of course agree with their assessment. Denial is a frequent component of cognitive impairment, rooted deeply in fear of losing control over one’s life. Even those who start to see and fear their own early difficulties with memory will cover it up, avoid facing it and carry on as if everything is fine. Even an annual physical checkup with the doctor is very unlikely to reveal the early warning signs of dementia unless the patient mentions cognitive problems to the examining doctor.
A protocol for advisors and others can look similar to the protocol every professional needs for aging clients. First, one needs a standardized way to spot the red flags of diminished capacity. Next, these must be regularly documented and contact with the potentially impaired client must increase. Third, a standard way to escalate the issue to knowledgeable others in the firm should exist. For clients who demonstrate the red flags, the organization must have a next step, which means contacting an appointed third party to become a surrogate decision maker. For professionals, a mandatory way to ease the person out of the job on a specific timeline should be in place, and this should become office policy.
It is time for every professional to look at the reality of the risk we all face with impaired cognition. It can happen to anyone. Your professional skill does not protect you from dementia. Wise planning for how you or your colleague would exit your job when you can’t see why you need to must be on everyone’s agenda.
By Carolyn Rosenblatt, RN, Attorney, & Dr. Mikol Davis Geriatric Psychologist
Three Tips For Talking To Your Older Clients About Long Term Care
When you look at an older client’s portfolio, the biggest concern is probably about whether they have enough to last to the end. You calculate the drawdown, the earnings, and you spend time on those figures. But what about long term care?
This is the conversation the client doesn’t want to have. No one wants to think about being disabled or losing independence.
Of course, this is not realistic. You, the planner may not want to bring up the subject because of your own discomfort, or because you aren’t sure what to say, or perhaps because your client dismisses it if you do bring it up. But a competent planner and advisor must do so.
Consider this realistic typical scenario:
A health crisis happens to your client. It can be a fall, a stroke or heart attack, anything that is unexpected. First, there is a hospitalization. OK, Medicare covers that, together with supplemental insurance. A rehab facility is next with therapy and nursing care. Medicare covers that but only to a point. When the elder is ready for discharge, the client and family are told, sometimes a day or two beforehand, that they will have to get help for the aging loved one at home. ”Doesn’t Medicare cover that?” they ask. Unfortunately, no, they are told.
The Cost
So the family members and the client start scrambling to provide help at home. In some parts of the country the cost is about $30 per hour. According to the Genworth 2015 Cost of Care study, the national median price for someone to provide help with bathing, dressing and walking or other hands-on home help is $20/hour.
When you do the math, you realize that even if your client needs just twenty hours a week at the average cost, it will add up to nearly $20,000 a year. That is on top of other, non-covered medical expenses, such as physical therapy when Medicare stops paying, hearing aids, and many medications. And that is just the beginning. Limited hours of home care often stretch into full time care as people who have disabling conditions age.
Some people figure they can spend their assets and give things away so they can qualify for Medicaid. I would not recommend Medicaid as the best way to get quality care. First, one must be really destitute to qualify for it. And the state looks back at all financial transactions for a five year period in most states prior to the application to see what was going on, what transfers were made and if they were honestly done. Second, the care one receives under Medicaid is the most basic, may be of the lowest quality and typically is not what anyone really wants.
If you can prevent that choice, you will. Your client could spend her last days in a three bed room in a dingy nursing home if she or anyone in her life thinks Medicaid is a fine way to pay for care.
The cost for quality care at home can be staggering. In my own prosperous county, with a very high elder population, the cost of 24/7 care at home from non-nursing providers (home care workers) exceeds $200,000 per year. That is on top of the ordinary costs of living a senior has, regardless of care. And she will still be paying her out of pocket costs for other things Medicare does not cover: many medications, other non-covered services, Medicare premiums, etc.
Taking On The Long Term Care Discussion: Three things you should do
You need to create a plan for how to pay for long term care in the future as part of your job of financial planning and retirement planning. Your client is not likely to ask you about it. Do not wait to have these discussions. Cash for the unexpected need for care could be a major expense. Your client needs to know the facts and figures. Most people grossly underestimate the costs. We have even seen financial industry publications naively state “Medicare pays for most things”. It doesn’t pay for what most people need to stay at home after any disabling condition arises.
Educate your client about the likelihood of this need for future care.About 70% of people will need long term care in some form in their futures. Failure to plan for it can bankrupt a person or leave them in serious debt toward the end of life. Or some investments could make cash inaccessible when needed.
Use resources to help yourself understand the real costs of home care, assisted living, and nursing home care. In order to educate your client, you need to educate yourself first. The Genworth Cost of Care study is a good resource. Here at AgingInvestor.com, we also offer tools[1] to help you. Be sure you have something to hand to and to discuss with your client. The need is now for any retiree.
by Carolyn Rosenblatt, RN, Elder Law Attorney & Dr. Mikol Davis, Geriatric Psychologist
[1]The Family Guide to Aging Parents: Answers to Your Legal, Healthcare and Financial Questions, and Succeed With Senior Clients: A Financial Advisor’s Guide To Best Practices and Working With Aging Clients, A Guide for Legal, Business and Financial Professionals. All 3 books are available at AgingInvestor.com and Amazon.com
Do you consider yourself to be pretty good at managing your older clients?
Most of us may be overestimating what we know and underestimating what we need to know. By the year 2020 nearly one in six Americans will be sixty years old or older. And 10,000 people a day are turning seventy.
If you’re thinking “so what?” consider this: the risk of dementia and Alzheimer’s disease rises with age and the risk doubles about every five years once a person hits sixty-five. So you the advisor, the financial professional with responsibility about another’s finances will have to deal with the risk. Some of your clients are impaired now whether you recognize it or not, and many of you have several clients with some cognitive impairment.
Do you know what to look for with your older investors? Do you know the red flags? And if you spot those red flags, do you know what to do about them? There can be a long list of signs showing that a person is beginning a downhill slide with her thinking and understanding. Let’s just start with one sign most of us can recognize: short term memory loss.
The First Red Flag
Researchers who study these issues tell us that this is one of the very first signs other people see when the older client (or anyone) is starting to lose the capacity to make safe financial decisions. The client may entirely forget a conversation he had with you last week or even the same day. The client may forget her appointment with you or that she had a question she needed answered. By the time you get back to her with the answer, she doesn’t recall asking it. There are innumerable examples of this in our lives, as grandparents, other older relatives and friends start becoming forgetful. When it happens with clients, it is a red flag that warns you something is happening that needs your attention. Why?
The signs of forgetfulness can indicate that you need to track your client more closely than before. That means increasing the frequency of contact, especially in person if possible. Memory loss may lead to dementia, though this is not true in every case. However, memory loss is listed by the Alzheimer’s Association as an early warning sign of Alzheimer’s disease. Clients who have this disease should not be making financial decisions without the assistance of a trusted other. It is far too dangerous for them, as their judgment is impaired.
Documentation
No one will know what you see in your client unless you keep good records of your client contact and your observations. You need to label the changes you see in a uniform way, as should everyone else in your office. Call things by the same terms so everyone understands what is going on. “Short term memory loss” is a good example. This is a term that is in widespread use and typically understood by just about anyone. If you document that, and then see a client six months later, noting that the problem is worse than at the prior contact, you and those who may advise you about what to do will have something solid to work with in making decisions about that client. When you document, give specific examples, such as “client called repeatedly the same day asking the same questions”. And comment that he appeared to forget the previous conversations about that subject.
Then What?
After you have spotted such red flags as memory loss, you need a plan for escalation of the matter to someone who knows more about elder issues than you do. That needs to be a firm-wide or office policy. The decision-makers on the subject of what to do to keep an impaired client safer need to have a solid working knowledge of what steps they can take with you to help your client and protect your organization from costly mistakes.
Red flags of diminishing capacity are things every financial professional must learn and understand. We don’t cover the topic deeply in this article of course, but we do take a deeper dive in the book, Succeed With Senior Clients: A Financial Advisor’s Guide to Best Practices. You’ll find all you need to know in the chapter entitled “Know the Client Red Flags”. It comes with a checklist you can use as a guide on what to look for and the right terminology to document your observations correctly. If you want a “cheat sheet” with the red flags on it, just go to AgingInvestor.com and download your free checklist any time. You can get the book by clicking here.
By Carolyn Rosenblatt, RN, Attorney, & Dr. Mikol Davis, AgingInvestor.com
Are Advisors Miscalculating Retirement Medical Costs?
According to CNN Money, a 65-year-old, healthy couple can expect to spend $266,600 on out of pocket costs for Medicare premiums in retirement. If that’s the advice you give clients about what needs to be set aside for medical expenses you’re missing some major facts.
Medicare premiums are a relatively small part of what it can cost when health issues arise as people age. No one likes to discuss the subject of possible cognitive impairment, but it has to be done. We see it as the financial advisor’s responsibility to bring it up, include medical expenses in the overall financial plan and get the truth out on the table.
According to a Wealth Management article on August 30, 2016, Fidelity Investments did a survey of over 350 advisors and found that 96 percent felt unprepared to help clients who had Alzheimer’s disease. This is in contrast to the reality that a person’s chances of developing the disease are at least one in three from age 85 and above. And we are living longer than ever in history. More centenarians, more Alzheimer’s.
What is the real cost of caring for a person with Alzheimer’s? I interviewed a high end home care agency owner about this question. Many HNW people do not have long term care insurance as they plan to pay for whatever they need out of pocket. Most are not aware of the cost of best quality 24/7 care they could need with their own longevity. In our work at AgingInvestor.com, we have encountered this scenario and have seen what best quality care looks like. It’s not your average home care agency.
The cost for caring for one person at home with Alzheimer’s from that agency is $300,000 per year. The workers are specially trained and well supervised. A care manager develops a plan and the workers take their shifts, prepared to deal with all manner of difficult dementia-related behavior, including violent acts and words, wandering out the door, refusing to bathe as well as those who are unable to express themselves verbally any longer. Non-specialty home care agencies do not accept this degree of client behavioral difficulty out of fear of their workers being harmed.
The ultra HNW client can pay for these costs but for everyone else, the expenses incurred with care for a progressive disease that escalates in difficulty over time could be devastating. The cost of home care is in the category “long term care” an often poorly understood subject among those outside the health care and insurance fields.
If you have clients who are at retirement age or are retired, it is a necessity that you educate them about these risks to their savings. When you work with them on their plans, you need to include the possibility, very real, that one or the other of a retired couple could develop dementia and need expensive home care. If you think they should just go onto Medicaid, think again. Every state has different rules but in all states a person can’t have much left in the way of assets and savings in order to qualify for Medicaid. And most importantly, people typically want to stay at home as they age. The quality of care they are likely to receive on Medicaid for long term Alzheimer’s care is low, and likely to be in a nursing home. No one wants that!
The takeaways
In developing retirement plans for clients consider the risk that your client may develop Alzheimer’s disease or related dementia. Bring it up and talk about it.
Plan for significant savings to be set aside in case care is needed, not just for Alzheimer’s but for any long term condition or disabling illness requiring help. Use real numbers, not vague assumptions.
Do not underestimate the real costs of caring for a person with this kind of dementia. It can last as long as 20 years. Do the math for your clients and show them what they would need to be cared for at home with a long term expensive illness like Alzheimer’s.
The responsibility to know about long term care costs is yours. To learn more about Alzheimer’s and how to spot the warning signs, get a free checklist to get you started at AgingInvestor.com.
The National Institute on Aging reports that scientists are using magnetic resonance imaging (MRI) of the brain to explore the parts associated with money managing abilities. Can we actually see a picture of this?
The report cites neuropsychologist and lawyer, Dr. Marson. “It’s the $18.1 trillion problem,” said Daniel Marson, J.D., Ph.D., professor of neurology at the University of Alabama at Birmingham, citing an estimate of household wealth held by U.S. adults age 65 and older. “That money is at risk in part because of the cognitive disorders of aging.”
We don’t have a way to pinpoint an exact spot in the brain that would tell us that a person is or is not competent with finances, but the report describes novel efforts using MRIs to find out more than ever about the brain and financial capacity. Changes in certain parts of the brain are linked to loss of financial capacity.
New techniques are providing intriguing data on why older adults—even those who were previously quite savvy about finances—may lose their money-managing abilities,” said Nina Silverberg, Ph.D., program director of the Alzheimer’s Disease Centers at NIA’s Division of Neuroscience.
What does this mean for you and your aging client? It may be one more objective way to verify what you already suspect: that an older client is not savvy anymore when it comes to handling finances. The trick would be persuading a client to get this brain image if you and the family suspect that the client is in cognitive decline. We don’t have the MRI techniques nailed down to verify loss of money making decisions, but that seems to be on the horizon.
Meanwhile, every advisor needs to be aware of the subtle signs of impairment in your client. An aging client who is in the earliest stages of Alzheimer’s for example, is already moderately impaired for making safe money decisions. That means that you, a responsible advisor have in place a clear path to bringing in a surrogate decision maker to help that client. Part of that $1.8 trillion Dr. Marson mentions as being at risk is what is paying your fees. Take prudent steps to protect it.
Learn fast about spotting diminished capacity with our downloadable free checklist at AgingInvestor.com.
Most of us probably think we know what to look for in an aging client who has diminished capacity. But have you every studied the subtle signs that should serve as red flags for you? Now is the time to learn more. Too many older clients are among us to ignore the probability that some of them will be too impaired to do business safely.
Indicators of diminished capacity will not always be so obvious to you, particularly if you are interacting with a an aging client and you as a professional are doing most of the talking. You are probably directing the conversation with that client If you have specific questions about a transaction, whether it involves a real estate matter, a legal transaction or case or accounting matter. You could miss the signs that your client is beginning to develop cognitive problems. If you are asking your client, “Do you understand?” and he says “yes” that is not a way to test whether he really did understand or not. You will need to do more if any warning sign pops up when you interact with your client.
Your elderly clients are exactly what professional thieves are looking for. They know, from the massive success they’ve had in stealing from elders, that age is the biggest risk elders have that can affect their money judgment.
But as a professional, is it really your business to keep them safe from outside predators? It’s one thing if the person taking advantage is in your own organization or office. That puts an obvious burden on you to act. But it’s the subtle things that you learn from your client about losing money to someone that should get your attention too.
Have you ever had an older client who didn’t want anyone, not even family, to know what his assets were? Did you find this secrecy about money to be a problem with a few of these older folks? It’s not so rare.
Everyone is entitled to privacy, of course, and the rules mandate that you not share a person’s private financial information. But what if your client begins to decline in his health? What if he starts to appear as if he’s “losing it”? Then are you supposed to just let him make mistakes and feel constrained that you can’t call a family member or anyone about his health? It does seem that most advisors do nothing until things reach a crisis point.
As aging experts, we think things should be handled differently. When you open every client file, you are not required to get the name of someone to call in case of emergency or in case of need. That is precisely what needs to change. Let’s consider common sense. If people are living longer than ever, their chances of developing cognitive impairment are consequently greater. With impairment, people lose their financial judgment. If you have a client’s trusted contact in the file, you may need it. And you can’t wait until your client is really, obviously impaired. If you do, she probably won’t want to give you anything. That puts you in a bad position. Your client is vulnerable to big mistakes and even to financial abuse. You don’t know what to do. You can’t call anyone and you wouldn’t know who to call even if you could.
Here’s the sensible solution: get the names and contact information of two trusted others for your client when you open any file. And with existing clients, ask them for the contact for two trusted people in their lives at the next portfolio review. Do it across the board for every single client. That way, when any one of them goes on to develop cognitive impairment, or dementia or has a stroke or anything disabling, you are not caught flat. And how do you ask that secretive client for the names and for permission to call when, in your judgment, the need arises? You start by making it your problem. You let the client know that it is now office policy. You politely insist and you get it done.
Not every single client will immediately cooperate. Some will need your patient persuasion and tact to coax them to do this. That is one of those “soft skills‘ you absolutely need with your older clients. A few may refuse your request and you can’t force it on them. But for most clients, the encouragement from you to look to the future may be considered part of your job.
Do you supervise anyone in your office or firm? Beware of supervision over improper mutual fund switching, especially with older clients.
FINRA Rule 3110(a) requires each member to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
An individual supervisor may be held liable under Rule 3110(a) for failure to provide reasonable supervision. When a supervisor is charged with a failure to supervise, it’s because of not acting on the red flags the examiners felt were evidence of wrongdoing. Those red flags could include switching to up-front sales loads with a number of elder investors and unusually high commissions that result. When this happens with a number of older clients, it will alert them to scrutinize you more closely.
If older clients have shown signs of diminished capacity and this sort of switching is going on, it is asking for trouble from FINRA. This agency is focused on a lot of compliance issues but they are particularly interested in anything that appears to be taking unfair advantage of seniors. They want you to understand diminished capacity and to be able to identify the warning signs. Every supervisor should know this information well.
One of FINRA’s persistent recommendations matches the stated goals of both the SEC and NASAA as well: it is that you keep your aging clients safer. Given that shared regulatory mission, it is understandable that they are looking for places to hold you accountable in your transactions with seniors.
To learn more about diminished capacity, the red flags and what you can do when you spot them, take advantage of an opportunity to get a quick online primer at your convenience. AgingInvestor.com offers Best Practices for Managing Clients With Diminished Capacity.
Is financial abuse happening to YOUR clients right now? Of course it is. There is no escaping it. A recent study puts the amount stolen from elders every year in our country at over $36B. With a problem as big as this, no group of elders is immune.. If you took a survey of your existing clients all age 65 or older, and asked them how many have ever been taken advantage of financially, you would be sure to get some clients who would admit to this. If you look at your own experience and count up any instance you know of, whether it is in your family, your neighborhood or your book of business, you will likely find some financial abuse as well.
Why Is This Important for You?
The amounts stolen, fraudulently taken or just snatched from the unwary, are shocking. Remember that when your client loses assets, you lose fees. That is the most basic reason this should be important to you as a financial professional. Doing the right thing to keep your clients safe is certainly a motivator as well. It shows that you do care about them. And beyond that, the regulators are increasingly aware that financial professionals are in a position to take action and, sometimes, to stop and prevent financial abuse. They will soon get past merely urging you to take action and to report abuse. They will ultimately make it mandatory.
And we think you can do more proactively than merely to understand how to report abuse after the fact. It would be great to catch more criminals but that is extremely difficult in many cases because they are very clever at evading law enforcement. And since family members are the most frequent abusers, we have an added problem in that many elders are reluctant to report abuse by their own to law enforcement. Mom just won’t call Adult Protective Services on her son, even when she knows he has stolen from her. We have seen this with our own eyes There are many instances of scammers getting into relationships with aging folks by phone or on the internet. The “friendly” relationships become addictive. These thieves persuade the victim to withdraw funds from their accounts. This is where the advisor comes in. Unusual withdrawals are an important warning sign of elder abuse. And when the advisor notices this in a client’s account there are choices available about stopping abuse. They include contacting a trusted other the elder has identified and warning them of what is happening. There should be more than one trusted person identified for every client. And by all means, contact Adult Protective Services and report it if you suspect fraud.
If you are worried about privacy rules, don’t be. The regulators of your industry want you to report abuse. They want you to make every effort to keep aging clients financially safer. If you are not sure about privacy, we can help you create a special privacy document here at AgingInvestor.com that gives you permission to call that third party. Every advisor with any client over age 65 should have this and understand how to approach a client about signing it. With permission like this, you should never hesitate to tell APS and the trusted other that you are concerned about your client being financially manipulated.
You can get more details about this elder abuse issue and what you can do as an advisor in Succeed With Senior Clients: A Financial Advisor’s Guide to Best Practices. See particularly the chapter “Financial Elder Abuse: How You Can Fight the Crime of the Century“. It’s available right now so click HERE to get your copy today.
Capacity and competency are terms loosely thrown around these days. How can you tell if your client has financial capacity? This kind of capacity is the most complex and requires intact judgment. You must have a good working knowledge of it or you could come under scrutiny for giving advice or selling products to an individual who is impaired. One thing is certain: you can’t tell if your client has the capacity for making financial decisions just from a quick call or social chat when ominous signs already exist suggesting that some impairment is present.
What do we know about financial capacity? It is defined as “the capacity to manage money and financial assets in ways that meet a person’s needs and which are consistent with his/her values and self-interest.” This seems straightforward, but it is not. Some people develop brain disease as they age, and with dementia, the erosion of mental capacity can take place over years. During the earliest stages of dementia, the brain cells are being damaged by the disease process, but the person has other brain cells “in reserve” and can still function in many areas without impairment. However, research has found that for people who are developing Alzheimer’s disease, financial capacity is already impaired even at the beginning stage.
If you have an elderly client who is still in charge of his finances, not unusual at all in our aging society, be aware that some clues may point to loss of financial judgment. To see those clues, you will need to observe your client over time and document the warning signs of diminishing capacity. Overall diminished capacity often means that a person does not have financial capacity any longer.
Financial capacity is divided into nine distinct areas. All nine must be intact for a person to have adequate judgment to act in his own best interests. One of the most important of the nine is the understanding of investments.
The person with this area intact is able to engage in and actively participate in developing an understanding of any financial investment decision. Knowing the value of a proposed transaction and the attendant risks are part of this area of competency.
If this sounds complicated, it is. You may be wondering if any of your clients are essentially competent in all nine areas. Some are not. Most people, if you wanted to take the time involved to patiently explain things like risk of an investment in simple terms, would get it. But when a client can’t tell the difference between a twenty-dollar bill and a five-dollar bill, that client is not competent financially, even if he can carry on a perfectly normal conversation about his favorite sports team or politics.
One clue to ask your client about is whether she is able to keep track of and pay all her own bills. If family or any other helper are doing this for her there is a reason. That may be that she forgets bills or pays them twice. That is a sign that financial capacity may be eroded. You need to take the next step and look at other areas of financial capacity before your client makes any further financial decisions.
If you aren’t sure what the nine areas of financial capacity are and you want to find out about this, you can do that fast in a chapter of our book, Succeed With Senior Clients: A Financial Advisor’s Guide to Best Practices. The chapter that will quickly give you the answers you need is “Nuts and Bolts: What Are the Components of Financial Capacity?” Get your copy today by clicking HERE.
Many older people have a bit of difficulty remembering. We often dismiss this when we see it in a client, thinking it’s “just getting old”. It may be part of aging, as we do process things more slowly as we age and recall may take longer. But, there is a point when a problem recalling things should be a red flag for diminished capacity for you, the advisor.
What are those red flags anyway? How do we label them?
There are numerous signs of diminished capacity, more extensive than this article allows, but we’ll look at one category, which we call cognitive signs. Here’s a breakdown of what you should look for when your client has a lot of difficulty remembering things.
What to note and document about memory loss
This is one of the first things most advisors may notice in a client that causes concern. Perhaps she does not remember important meetings, decisions and discussions. Here are some examples of what you may see:
Multiple telephone calls in one day that are repetitive and do not make sense. The client forgets that she has already talked with you and is calling about the same thing in another call to you. She repeats a question she already asked you and that you already answered.
Client forgets why he has an appointment with you. This can be by telephone or in person. Perhaps the client himself asked for the meeting but then he forgets why. Or perhaps you wanted to discuss a proposed transaction with him and told him that, but when you call or he comes into your office, he has no idea why he is there. Trying to refresh his memory about it does not help.
Complete forgetting of an event that just took place. You just spent a hour with your client telling her some important information about upcoming changes to her portfolio. She seemed to understand when you were talking but an hour later she asks you questions as if the meeting you just had never took place. She had totally forgotten about it.
No shows.
You have arranged meetings, appointments with others or events that require your client’s participation. He agrees on the pre-arranged date and time but then does not show up. When you call him, he has no recollection of the event, that others are involved nor that he had agreed to this.
If your client demonstrates any of these indicators you need to be paying close attention and make an effort to contact your client more often than you did before you noticed these problems. Any or all of them might be warnings of developing dementia. The only way to determine if you have a serious problem here is to track these signs over time and keep good records of it.
If the problem gets worse, it is time to take it to the next level. In your organization that might mean escalation, or having the documentation reviewed by a committee. Ideally, as we see it, the next step should include contacting the client’s appointed trusted third party who would step in when the client became impaired.
To learn more about the other red flags for diminished capacity in your clients and how to document them, get a copy of Succeed With Senior Clients, A Financial Advisor’s Guide to Best Practices. See the chapter “Know Your Aging Client’s Red Flags”. It comes with an easy to use checklist you can put to work right away. Click HERE for your book!
By Carolyn Rosenblatt, RN, Elder law attorney
AgingInvestor.com
<div class="signature"> <table style="border: 2px solid #999; border-style: solid; background-color: #f5fff5;"> <tbody> <tr> <td style="width: 110px; vertical-align: text-top; align-content: center;"> <div style="border: 1px solid #eee;"><img class="alignleft" src="https://www.aginginvestor.com/wp-content/uploads/2015/04/DavisRosenblattPublicityPhoto.jpg" alt="" width="123" height="116" /></div></td> <td> <h4>Dr. Mikol Davis and Carolyn Rosenblatt, co-founders of AgingInvestor.com</h4> Carolyn Rosenblatt, RN, Elder Law Attorney offers a wealth of experience with aging to help you create tools so you can skillfully manage your aging clients. You will understand your rights and theirs so you can stay safe and keep them safe too. Dr. Mikol Davis, Psychologist, Gerontologist offers depth of knowledge about diminished financial capacity in older adults to help you strategize best practices so you can protect your vulnerable aging clients. <a href="https://www.aginginvestor.com" target="_blank">AgingInvestors.com</a> offers accredited cutting edge on-line continuing education courses for financial professionals wanting to expand their expertise in best practices for their aging clients. To learn more about our courses click <a href="https://agingparents.leadpages.co/ceu-choices/" target="_blank">HERE</a></td> </tr> </tbody> </table> <table><script src="https://agingparents.leadpages.net/leadbox-856.js" type="text/javascript" data-leadbox="1458b05f3f72a2:160053496b46dc" data-url="https://agingparents.leadpages.net/leadbox/1458b05f3f72a2%3A160053496b46dc/5663812699029504/" data-config="%7B%7D">// <![CDATA[ // ]]></script></table> </div>
Diminished capacity is sort of a catchall term that can mean different things. A person can have the capacity, for example to create a will or a trust, but at the same time that person might not have the capacity to understand the risks of buying a complex financial investment. Capacity is on a continuum. The more sophisticated the decision needed the more capacity it takes. The dividing line between impaired and unimpaired is not clear.
Is there any way to measure capacity? We have a number of things in the medical field that help give us clues and data, but there is no one, single thing that tells us for sure. We can’t see inside a person’s thoughts. What we do have is testing of the various areas of the brain, with standardized instruments that give us information about how a person thinks. We call it neuropsychological testing.
What is neuropsychological testing?
Neuropsychological testing (using groups of related paper and pencil and verbal question and answer tests) can provide useful information to take the question of capacity outside the realm of speculation. Test data provides numbers, scores, something specific.
This kind of testing can give useful information about which tested parts of a person’s cognitive function do or do not compare normally with the tested function of people of similar age and education.. When a person falls below a measure of what is normal, and we have test scores to tell us where and how, it can give us guidance about whether to allow a person to keep making financial decisions.
Testing is underused in helping us find out about a person’s mental capacity for numerous kinds of things, such as memory, following verbal instructions, understanding information and learning a new task. Not enough families know about it and request it and not enough others refer clients to the right source for considering it as a tool to give us more information. Perhaps older people resist it out of fear not “passing the test”. If clients secretly know that they are losing their memory and do not want to be found out, they will strongly resist any suggestion of testing.
What can the advisor do?
If you are worried about a client who seems to be “losing it” and you aren’t sure you have enough information about that, you can suggest that the client get a medical checkup, and that he ask the doctor to check into his memory. This is not a sure path to neuropsychological testing, to be sure. Unfortunately, doctors spend very little time with patients these days and a brief visit may not result in the follow up testing you would like to have done. But in some cases, clients are willing, particularly when encouraged to do so by a concerned spouse or other family member. In spite of obstacles, know that this objective way of measuring things does exist and it can help everyone involved in the senior’s life.
Want to learn more about best practices for clients with diminished capacity? Know the red flags and feel confident about what to look for.
Aging clients are an inevitable part of the landscape these days. People are living longer than ever. That’s great, but age brings risks to one’s mental capacity. And those risks put a burden on you the business professional to be aware of where to draw the line. When is it just not safe to rely on what an older client tells you to do?
Bear in mind that by age 85 one in three people will have Alzheimer’s Disease. This brain-destroying and progressive condition comes on slowly in most folks and begins to take its toll of judgment about financial matters quite early in the disease process. The person might seem perfectly fine in social discourse. That is not a guarantee of financial capacity.
Industry regulators are always coming out with recommendations. And those have a way of eventually becoming mandates. When it comes to seniors, the regulators are very concerned about financial professionals keeping aging clients safer financially. We’re not talking about the DOL rule here. We’re talking about a lot of other recommendations they’ve made. One of these is increased communication with your older clients, 65+. What’s the big deal? These clients are more at risk of financial abuse from every direction. Regulators want you to do what you can to protect senior investors.
Here are two ways they suggest you do that.
First, increase the frequency of your communication with these older clients. That means reviewing their portfolios more often. It means calling or writing more often. It means paying attention to what is going on in their lives that may increase their risk of being manipulated financially.
Second, discuss with your clients the issues that affect seniors. One of these issues is the possibility of becoming impaired. You can present the idea in terms of having a stroke or heart attack. That’s a lot easier a concept for an older person to swallow than the idea of becoming cognitively impaired, everyone’s great fear. So you suggest that your client be sure to have an appointed agent on a durable power of attorney.
Another important piece of the picture of improved communication with aging clients is for you to encourage them to discuss their financial affairs with their heirs. You can be the catalyst in this process. Such discussions provide a forum for you to recommend that the client appoint a trusted other to serve as agent on a durable power of attorney document. Knowing that your client has done that essential thing, you have the potential to work with the appointed person in the event that your client becomes incapacitated for any reason, including dementia.
Without a DPOA, it is generally a messy legal problem for those who must take responsibility for an impaired elder. They may have to undertake the expense of seeking a guardianship in court to even have legal permission to make a bank withdrawal or sell a stock for the elder. If you know who the appointed person is, suggest a conversation with your client and that agent. Lay the groundwork for communication, should the need arise to have the DPOA step in at a later time and act on behalf of your client.
(Incidentally, from a legal point of view there should not be a conflict in appointments of the agent on a DPOA and an appointed successor trustee for the family trust. That begs for later fights. Encourage your client to consider this!)
We are touching on just a bit of what the SEC, FINRA and NASAA have jointly recommended for you and indeed urged you to consider in working with your aging clients. They want you do to business with this population in your book differently than the way it goes with younger clients.
Have you ever felt frustrated when you thought your client was showing signs of declining mental status? Did you ever want to get someone else involved in financial decisions but thought you couldn’t because of privacy rules?
The average advisor has seven clients with some form of diminished capacity. Perhaps you are one of them, not comfortable with the privacy laws that restrict you from calling in someone to help when your client doesn’t seem all there anymore.
If you are worried that you must just stand by and watch a vulnerable client make bad decisions, or worse, get ripped off by someone who is manipulating him and taking advantage of his cognitive impairment, there’s good news. There is a way around the confidentiality conundrum. You need your client’s permission in advance to call that third party.
How do you plan for the possibility of needing a third party? Take your cue from lawyers. When we have a conflict that would be there unless we get an ok from our clients, we design a document that allows the client to give up the right she would otherwise have. We get the client’s signed approval do to what we need to do whenever feasible. You can do the same thing with privacy restrictions.
Imagine that you have some clients over the age of 65. Imagine that you are a proactive thinker. You want to keep all of them safe and keep those clients, even if they decline cognitively in the future. Imagine that you have been really smart and have gotten a special permission document done. Every client over age 65 signs it. You are ready!
What Should A Privacy Permission Contain?
We recommend three essential elements for your document.
First, you need to identify the circumstances under which your client wants to give you the ok to call in that third party they identify.
Second, the document needs to be legally sufficient; i.e., it should have language like an advance healthcare directive or a standard durable power of attorney.
Third, it needs to be signed and notarized by your client.
How Do You Get It Done?
Your legal department should be able to help you. If not, a model document was created by lawyers at AgingInvestor.com, in the context of a senior-specific program to protect your aging investors. You can’t just throw one together. As you have to know, recognize and document the signs of diminished capacity that would lead to use of this kind of document, those are prerequisites. Then the matter escalates according to a standard procedure. Get a clear path. Find out more about it HERE.
One broker had an $8M client take his assets elsewhere because of a fatal communication mistake. Could it happen to you?
An adult daughter of a broker’s client approached the broker about her father’s recent diagnosis of Alzheimer’s Disease. She asked for his help. He shrugged his shoulders and said, “Basically, I don’t do any of that. I just manage the money”. The daughter was upset, as her father was losing his memory and put his finances at risk. The broker did not wish to get involved with that problem.
Of course, that was the end of his managing the $8M worth of assets.
This situation, having to face a client who has been diagnosed with a brain disease or some other form of cognitive impairment is not unusual and it is becoming a much more frequent issue as our population ages. People are living longer than ever and the risk of Alzheimer’s and other age-related problems rises steadily with age. Can financial professionals just hope this issue will go away because you “only manage the money”? We think not.
The communication, the knowledge and the skill set needed to best manage your aging investors are needed, yet few are seeking to personally improve by acquiring them. How many frustrated family members of your aging clients are going to take assets away from your management because you don’t know what to do and aren’t willing to get out of your comfort zone and be a part of protecting a vulnerable elderly client?
Here are three steps you the professional in a similar situation could take to hold onto the assets, protect the client and let the family know that you care about more than just the assets.
Meet with the family and explore the extent of the impairment. If the client is still competent to sign a privacy waiver, get that done so you can communicate with the client’s appointed representative.
Educate the client’s appointee in your client’s presence about his plans for his investments and the philosophy he has demonstrated in the past. This will ensure continuation of what the impaired person wants going forward.
Set up regular family meetings going forward from the first notice of the problem. This will ease the transition of the client with Alzheimer’s disease out of the seat of power while still respecting the ability he has remaining to communicate about what he wants. It is important to empower the successor to decision making with knowledge the elder may provide while assuring the aging client that his wishes will be honored in the future.
If you are uncomfortable with the whole area of diminished capacity, you can get the skill set you need without taking too much time. Wouldn’t it be great to have more confidence about it?
Get your Fact Sheet for Financial Advisors and learn the red flags of diminished capacity and what to do about them by clicking below.
Have you ever wondered about one of your own client’s capacity for making financial decisions? Professionals who directly or indirectly sell services and products to aging people may not be clear about financial capacity. It is indeed a complex thing, and one should not underestimate how difficult it can be to make a determination about whether a client is impaired. Does the client seem “out of it” sometimes? Forgetful? Is he acting strangely? Maybe you just dismissed it if you noticed those things. You may have thought, “he’s just getting old”. Maybe you didn’t think it was any big deal. But was it? Diminished capacity may not be obvious at all. Small warning signs can be missed. And every warning sign is a clue. The clues can mount up and paint a picture. You need to be able to see it. And first you need to know what to look for in your aging clients. How do you decide whether someone has diminished capacity for financial decisions? Ultimately, the question of capacity is a legal decision, aided by lawyers, medical professionals and sometimes by judges. And lawyers also have a difficult time seeing the grey areas and the nuances of thinking that comprise financial decision-making abilities. One thing every professional working with seniors should know are the warning signs of dementia. If you see enough of these warning signs, your client is likely to be impaired in her financial judgment Excellent information for the public is available on the Alzheimer’s Association website at alz.org.Memory loss is often the first sign of dementia. There is a difference between memory loss a non-demented person experiences and the memory loss that evolves in to dementia. As an example, forgetting a person’s name is common and we usually remember the name later. (Does this ever happen to you, “it’s on the tip of my tongue, but I can’t remember right now”?) People who are developing dementia don’t remember these things later. Their short term memory is eroding steadily. They forget what was said in the middle of a sentence. They forget appointments. They don’t remember that you spoke with them yesterday. Confusion is another sign. They may forget where they are going or get lost. They may exhibit unusual behavior from what is normal for them. These are the kinds of things that tip you off that a cognitive problem is looming. A person who shows you these signs may be impaired for making safe financial decisions. Beware of drawing general conclusions about dementia or Alzheimer’s Disease from a single case with which you may have personal experience. If your client is not doing what your grandmother with Alzheimer’s did, you can’t be certain that your client does not have dementia. Have you as a financial professional had any personal experience with dementia in a family member or client? Let us know about what you did to handle the issues affecting so many. We welcome your input. Need a quick checklist to use to identify the 10 red flags of diminished capacity in your clients? Get yours now by clicking below. It’s free.Click here to get your free downloadable Checklist “The 10 Red Flags of Diminished Capacity” Dr. Mikol Davis & Carolyn Rosenblatt, R.N., Elder Law Attorney
Do you have any clients over age 65? They may not know about: the grandma scam. Although the government, local agencies and sometimes the media publicize these predatory traps for elders, somehow the word doesn’t get around fast or far enough. Here at AgingInvestor.com, we work with a lot of families who have elders and we’ve been sounding the alarm since 2007 on this one. But it persists. Intelligent people, doctors, lawyers, professionals and non professionals alike are being victimized. Anyone can be caught off guard.
A call from a young person is made to the targeted older person, often at night, after the aging person is asleep. Half awake, grandma answers the phone. ”It’s me, Grandma” the caller says. Grandma immediately falls into the trap and says “Michael, is that you?” Or any grandchild who is named instantly becomes the identity of the caller. ”Yes, it’s Michael” the scammer says quickly. He then says he’s in trouble in some named city far away or even a foreign country. He’s lost his passport, or been arrested, he’s in the hospital, he’s very sick, or some concocted tale of needing help desperately. There is pain in his voice. He says how much he loves his Grandma and please don’t tell his parents. He needs money right away for the bill or for a laywer to get him out of jail or to get a new passport, etc. Would Grandma please wire the money? The targeted victim has to act right away. But repeatedly, older gullible people are swayed by the feeling of wanting to help a grandchild in need. And they don’t take time to think.
Grandma is so concerned, she gets that cash wired to the scammer right away. She doesn’t check anything out and she doesn’t call her son or daughter, the parents of the fake grandchild. It takes a while before she realizes she’s been had. Millions of dollars are lost this way, in smaller amounts at a time. No matter how much the press reports this kind of scam, the thieves keep at it, as they know that about one in fifty calls will result in getting money from an unsuspecting person.
Why are these con artists getting away with it? Dialing for dollars all day is quicker and easier than robbing a bank and it gets better results. The con artists rarely get caught. The money, once wired, is gone forever from the victim. And due to shame and embarrassment, victims rarely report the scam artists to the police. Con men buy names from subscription lists with likely senior citizen readers or from other information brokers. Some have the ages of their targets and their addresses. Sometimes the more sophisticated ones have even researched the names of family members, so calling Grandma is more likely to sound credible. If the caller’s voice isn’t recognizable, there is always an excuse: I have a cold, I’m really sick, or anything that works to persuade Grandma it’s really her grandson.
What’s the takeaway?
Your client can be easily tricked under the right circumstances. Wanting a call from grandkids is the starting point for scammers. It triggers an emotional response to the plea for help. “I love you” is something the grandparent wants to hear and the emotional hook is the basis of the con man’s success. Warn every aging client to be aware of the scam and to ask the caller a question only a real grandchild would know: the name of a pet, a parent’s birth date or a nickname.
Financial professionals are in a unique position to educate clients about finances and how to keep from losing money. Thwarting abuse is so important! Have you ever had a client get scammed? Have you seen ripoffs from their own family members? We’d like to hear your perspective on this. Comments welcome.
Learn what you can do about elder abuse at AgingInvestor.com in a one hour accredited course. Check it out here.
There is something about memory loss that should raise a red flag when it comes to your aging clients and their investments. Are you prepared?
By 2030, there will be 72.1 million people in the U.S. over age 65, or “elders”. 7.7 million of them will have Alzheimer’s Disease (AD). This directly translates to a large number of impaired clients making or attempting to make financial transactions and decisions. Some of those transactions could be with you.
According to respected researcher, attorney and neuropsychologist at the University of Alabama, Burmingham, Dr. Daniel Marson, losing capacity for financial decisions is something we need to be ready for, as it affects a huge part of our population. The problem is growing. Financial institutions, organizations and banks need to take preventive steps to avoid financial losses and exploitation of their clients.
What are the implications for the financial services industry? Demographics and dementia demonstrate that policies need to change and institutions need to explicitly plan for diminished financial capacity in their investors. We’re not just talking about escalating a matter to compliance when a client seems to be behaving oddly. We are suggesting that institutions and organizations get over the brick wall excuse that it’s not their problem, it’s the family’s problem. Financial professionals need to change the thinking that privacy concerns prevent them at all times from doing anything unless the client gives permission. A client who is impaired for decision-making may not be willing or able to give permission for you to discuss a problem with family until it is too late. Getting permission needs to be a proactive mandate.
Privacy does not have to be a problem if your organization, institution, or you, as an individual plan for the possibility of diminished capacity as a part of all investment transactions. That planning will include obtaining a special authorization for the financial services professional to contact a designated person when certain criteria are met. That, of course, means thinking through, with the input of aging experts, the criteria that would trigger the use of the special authorization.
Further, one should develop an agreed upon plan of action for the financial professional when the criteria that demonstrate diminished capacity are identified. This will take collaboration among all the players in institutions, so that policy development is uniform, regulation-compliant, and fair to the aging person who may be developing impairment.
Most importantly, a secure path of communication and action for the institution needs to be in place. No one with a questionable aging client should be left wondering:
Should I escalate this to compliance now, or does it take more?
Do I have the authority to contact a family member, or does that violate my client’s privacy and the laws about privacy?
What steps should I take now to protect myself?
Clients with memory loss are likely going to become impaired for making financial decisions at some point. Do you want to lose the assets under your management because your aging investor can’t figure out what you are saying and can’t approve what you need to do to protect him from disaster? We see an absolute connection, based on very solid research, between the dangerous red flag of memory loss and financial loss.
If you have heard the term “sliver tsunami” you may know that it refers to the massive wave of aging folks in our population. In case you haven’t noticed, it has already hit and your feet are getting wet.
Get a one page checklist you can use to identify ten signs of diminished capacity by clicking HERE. Be ready for aging clients and know what to do!
U.S. Senator Patty Murray, U.S. Secretary of Labor Thomas Perez, and WHCOA Executive Director Nora Super discuss aging issues at WHCOA Seattle Regional Forum – Credit: white houseconferenceonaging. gov
What Is This Conference and Why Is It Important?
Every ten years the Federal government sponsors a Conference on Aging.
The relevance of this conference to financial professionals is that it identifies the most common problems aging Americans face and it provides direction for planning for seniors’ needs. It is worth reading the final report. You likely have some boomer age clients and perhaps some aging clients as well. Be aware of what is important to them and you’re likely to keep them as clients.
Who Attended the Conference?
Beginning in February 2015, WHCOA held a series of regional forums for its Conference on Aging to engage with older Americans, their families, caregivers, leaders in the aging field, and others on the key
issues affecting older Americans. The concept was to hear about seniors’ issues and plan accordingly. The series of discussions was co-sponsored by AARP and planned in coordination with the Leadership Council of Aging Organizations, a coalition of more than 70 groups,
Each forum included 200 invited guests — older Americans, family and professional caregivers, aging experts and others. These discussions took place across the country.
Reading about the subjects they discussed and the conclusions reached in the conference Final Report was not a surprise to us at AgingInvestor.com, as we are in the field. But one thing did surprise me completely: no one gave much mention to the need for thorough financial education and planning
with professional help.
There was mention of the Department of Labor’s initiative to facilitate State creation of retirement savings programs. There was also discussion of the U.S. Department of the Treasury’s recently issued guidance clarifying that employers sponsoring defined benefit pension plans generally may not offer lump
sum payments to retirees to replace their regular monthly pensions. As noted in a recent Government Accountability Office report, such lump sum payments transfer longevity risk and investment risk from employers to individual retirees, putting retirees at risk of being unable to maintain their standard
of living or outliving their assets in retirement. Wouldn’t financial advice help? No mention was made of the value of at least seeking advice from financial professionals to maintain income while investing responsibly for those who did get a lump sum payment.
The report emphasizes the need for providing lifetime income and seems to favor employers offering annuities as part of retirement planning. The Treasury and Labor Departments previously have issued
a series of guidance documents encouraging plan sponsors to offer responsible annuity options to help protect retirees from outliving their savings.
The Gap
That may work for some, but I found myself at a loss as to why mention was not made of the importance of professional guidance in financial planning, which may be the best way to ensure that an individual
does not, in fact outlive his savings. That’s your job.
Opportunity for Financial Advisors
An obvious opportunity for financial advisors is to offer financial education to members of the public. Some attendees will not have enough to make new investments, but others will. With 10,000 people turning 65 every day and the oldest boomers turning 70 now, financial advisors can play a key role in helping aging members of society do better with managing their money as they age. Advisors can improve the sometimes negative public perception of the industry by stepping up, putting on few seminars with the basics of saving and investing and capturing some new clients in the process.
Need to update your information about long term care? Get a short book that tells you how to best work with your aging clients, including planning for the costs they may worry about the most. Working With Aging Clients is a sure bet, available at AgingInvestor.com.
The family meeting is the bedrock of a successful intergenerational wealth transfer. But how does the financial professional conduct these? What are the right ways and wrong ways to go about it?
If you want to learn a process, the kind of team you need and the best ways to have family meetings with your client and his heirs, you need this course. We will give you specific pointers on how to get started, how to deal with problematic family issues and how to bring in the best experts to help you. We cover a lot in an hour, so be ready to learn. You’ll come away a lot wiser about establishing a great relationship with your client and those who will inherit his assets.
Summary of course:
Family meetings are the bedrock of successful intergenerational wealth transfers. In this course you will learn how to help your client develop a family mission statement, and how to create an atmosphere of learning for any willing heirs who will take over responsibility for a family’s assets. There may be many different kinds of assets a high net worth family has. Heirs can’t keep control over those different assets without excellent preparation. We show you how to get that preparation in place and how to make sure it works. We also teach you about the warning signs of a family that is too dysfunctional for you to be able to help with wealth transfer. Your understanding and confidence in handling a family meeting will grow by leaps and bounds with this course.
Learning objectives:
To improve your understanding of how wealth transfers fail and how to change this
To enhance your ability to facilitate communication about transfer of wealth in families
To improve your ability to retain management of assets held by aging investors that they intend to pass to their heirs
To increase communication skills for developing trust between yourself, your client and her heirs
It’s pretty well known that intergenerational wealth transfers fail about 70% of the time. What makes the other 30% successful? If you’d like to learn how you can help your client be part of one of the successful families, you’ll need to understand the critical parts of success and how to achieve them. Communication is one of the things we talk about in this course. Who better to advise us than an experienced psychologist who has worked with families for over 40 years? Dr. Davis has given us great information to help ease your way and give you confidence in creating a path to a wealth transfer that works well.
Aging clients present many challenges for their financial advisors. There are physical changes in hearing, vision and mobility as well as memory issues. This course shows the advisor how to accommodate for the changes that normally accompany aging so they can best serve older clients. It also offers strategies to address changes that are not normal, such as cognitive decline and loss of capacity for financial decisions. Talking to clients about these is likely to be uncomfortable. With the expertise of the psychologist who helped author this course, conversation scripts are offered on how to bring up and talk about delicate subjects tactfully. We illustrate advisor-client dialog with videos and demonstrate the best ways to talk to a client about giving up decision-making authority when impairment sets in.
Learning objectives:
Identify ways to accommodate a client who has physical impairments that are barriers to advisor-client communication.
Plan and know how to rehearse the words to use when it is time to approach a client with memory loss about getting a third party involved in financial decisions.
Manage client resistance to discussing these difficult subjects.
Use basic rules of communication that are proven success techniques to approach any difficult conversation with your client.
Update on what the SEC, FINRA an NASAA have in mind for financial professionals across the country in how they do business with clients over age 65. Review of the research these agencies have done, Model Rules regulators have created and what exemplary things they found firms and organizations doing for aging clients. They all want financial professionals to be more protective of aging investors. They envision mandates for reporting financial abuse of elders will and expand mandates into other areas. This course highlights areas regulators expect advisors to address, such as training in senior issues and increased communication with aging clients. It provides specifics on how to get ready for what the regulators want so that you will not have to scramble to comply with mandates.
Learning Objectives:
Understand the regulators’ concept of a “senior program” and how you can create one.
Know the Model Rules about financial abuse the regulators have already publicly posted.
Know what other firms across the US are doing about aging investors that you should be doing too.
Know what action steps you can and should take now to be ready for mandates.
Our population is living longer than ever. The risk of dementia rises with age. That means that most of us are going to encounter problems of aging in our clients.
We need to recognize the red flags of impairment that will affect financial capacity. These include:
Cognitive signs, such as memory loss and difficulty understanding the conversation
Communication, calculations and orientation problems
Emotional signs that are out of character for your client.
It is essential for every financial professional to understand the complexity of financial capacity and appreciate how many parts it has. There are 9 domains of financial capacity. You cannot determine if a person is impaired or not just by talking on the phone with her or having a brief meeting in which you give information.
A normal social conversation with the client is not a measure of whether or not the client has diminished financial capacity.
The more aware you are as a professional, the better chance you have of protecting your client from loss and protecting yourself as well.
Learning objectives:
Prepare yourself for the wave of aging clients by understanding the demographics of our aging population and the risks of dementia associated with aging.
Understand the 9 domains of financial capacity and learn how to spot problems with any one of them.
Be able to identify red flags of impaired cognition that should prompt you to act.
Develop a personal plan for what to do when you see warning signs of diminishing financial capacity
One benefit of the increasing life expectancies for Americans is that more people have bonus years for enjoying the company of their aging parents.
But all is not rosy. Those extended years also boost the odds that parents could go broke or suffer from dementia and be unable to make financial decisions for themselves.
That can leave adult children perplexed about when and whether they should step in and find out what’s happening with their parents’ money, says Carolyn Rosenblatt, a registered nurse and elder law attorney.
“Unfortunately, it’s not always easy to have those conversations,” says Rosenblatt, co-author with her husband, Dr. Mikol Davis, of The Family Guide to Aging Parents (www.agingparents.com) and Succeed With Senior Clients: A Financial Advisors Guide To Best Practices.
“Some stubborn parents just refuse to talk about their money. No matter what their adult children say to them, they put it off, change the subject or tell their children it’s none of their business.”
Of course, many adult children aren’t in any particular hurry to broach the subject either, says Davis, a clinical psychologist and gerontologist.
“They have their own discomfort about it and procrastinate,” he says. “Then a crisis comes up and no one has any idea what the parents have or where to find important documents.”
But Rosenblatt and Davis say it’s critical that these conversations take place so that the offspring can gather information about such subjects as the parent’s income and expenses, where legal documents are kept, and what kind of medical or long-term-care insurance the parent might have.
The success of these conversations often comes down to how you approach the subject, Rosenblatt and Davis say. They offer a few tips:
End the procrastination by picking a date for the talk. Make an appointment with yourself to bring up the subject at a specific time. An opportune time to schedule this is after a birthday, a family event or a holiday where other family members are together who may share in the responsibility for the aging parents in the future.
Show respect. Tell your parents you understand and respect their reluctance to discuss their finances. You can even make the conversation about yourself rather than about them. Say that you’re concerned that if something went wrong, you would be completely lost as to how to help them.
Address their fears head-on. Let them know you understand they are worried that if they talk about their finances their independence might be taken away. You might add that you want them to maintain their independence as long as possible and you’re willing to help accomplish that, but you can’t do it without the correct information.
“Getting past an aging parent’s fear about talking about finances can be daunting,” Rosenblatt says. “But a well-planned strategy for approaching the subject will give you your best chance.”
About Carolyn Rosenblatt and Dr. Mikol Davis
Carolyn Rosenblatt and Dr. Mikol Davis are co-authors of The Family Guide to Aging Parents (www.agingparents.com) and Succeed With Senior Clients: A Financial Advisors Guide To Best Practices. Rosenblatt, a registered nurse and elder law attorney, has more than 45 years combined experience in her professions. She has been quoted in the New York Times, Wall Street Journal, Money magazine and many other publications. Davis, a clinical psychologist and gerontologist, has more than 44 years experience as a mental health provider. In addition to serving his patients, Davis creates online courses and products to assist professionals and the public with understanding aging issues. Rosenblatt and Davis have been married for 34 years.
Dr. Mikol Davis and Carolyn Rosenblatt, co-founders of AgingInvestor.com
Carolyn Rosenblatt, RN, Elder Law Attorney offers a wealth of experience with aging to help you create tools so you can skillfully manage your aging clients. You will understand your rights and theirs so you can stay safe and keep them safe too.
Dr. Mikol Davis, Psychologist, Gerontologist offers in depth of knowledge about diminished financial capacity in older adults to help you strategize best practices so you can protect your vulnerable aging clients.
So many professionals we talk to are worried about aging clients, those in their 80’s, 90’s and older. And for good reason. Mikol’s mother is now 92 and she lives independently. She is not exactly a sophisticated investor or consumer. She is very sharp mentally, but that does not mean she could not be manipulated. She has already been taken advantage of by one financial advisor. He got caught though. By us. We took a quick video of Alice, and without naming any names, you can see what she has to say about what the investment this advisor put her into. Click on image to see Video.
We have a very special advantage with Alice. She is willing to let us watch over her investments and her day to day financial life. Not only is she open to receiving this support, she generally welcomes it. That is not an advantage every family has. But even if your aging client or loved one is less than willing to allow those in their lives who can protect them from harm to discuss their financial business, they may be willing to make at least one concession. We recommend that you try for this, suggest it to all the aging folks in your world and take one small step in the direction of their protection.
The professional crooks are at it again. The U.S. Attorney’s office recently charged six defendants with yet another telemarketing fraud scheme targeting the elderly. The allegations are that the con artists sought out and preyed upon the elderly through their lottery scam. We see these reports often in the news, to the point that they seem very repetitive. The characters and the amount of money stolen from elders changes but the methods are the same over and over. They caught the scammers this time and charged them with theft of a total of $400,000 from various victims. That’s the least of it. Other scams bring in millions from their vulnerable victims.
Why do elders fall for these things? Why don’t they get that the “Nigerian prince” or the “Jamaican Lottery” are clearly bogus and not to be trusted? (more…)
Carrie got concerned when her brothers suddenly began to exclude her from their Mom’s financial affairs. It didn’t feel right, but she wasn’t sure she could do anything about it. When she called, I got that “slow burn” feeling that comes over me when I hear about financial elder abuse. As a consultant for folks with aging parents, it’s not the first time I’ve heard this kind of story. (more…)
With $30 trillion in wealth being transferred between generations now and over the next decades, advisors are missing a huge opportunity. If you are fine with losing your chance to retain the next generation after your current clients transfer their wealth, do nothing different. You can count on 66% of your client’s heirs taking their business elsewhere. If you would like to change the odds for yourself, you need to do a lot more than “get to know your client’s family”.
That vague advice will not result in adult children of your current clients seeing you as a desirable person to trust. If you want to establish relationships with the heirs, take the advice of those who have researched this problem of client flight and do more.
As you stay in the financial advising business for a time, you will surely see more aging clients. People are living longer than ever in history. They are part of your practice now or they will be soon enough. With aging come risks: cognitive decline, physical limitations and the need for care that can get very expensive. Will diminished capacity make your client vulnerable to abuse? Can you help protect your client by taking proactive steps right now?
You want to be of service, but you don’t want to go overboard and become someone’s social worker. What can you do to ensure your clients’ safety and well being as they age? Here are five tips for the conscious advisor who knows your client beyond managing the money.
The securities industry is pushing to impose temporary holds on certain transactions that may be precipitated by a clients’ declining mental capacity, or purported loved ones who may be trying to swindle them. Sounds good in theory. Too bad it won’t solve the problem of financial abuse. Does the industry think that waiting is going to make the problem of predators go away?
Here is an example of a real case in which this exact method of the broker waiting and hoping didn’t do a thing for the elder who was being abused. READ what happened:
Have you ever heard the term “undue influence”? from time to time, Most people don’t really understand what it means. Is it just some weird legal thing? Or should you understand it? When it comes to seniors and financial abuse, the term becomes very important, because undue influence can readily lead to financial abuse.The legal concept of undue influence goes way back in history to the 1600s. A lot of our law in the US is based on what our British ancestors did. Sure enough there is an old case in which a woman pretended to love an older man and pressured or influenced him to give her all his money and property upon his death. She didn’t love him. She was married to someone else. The elderly man changed his will and left everything to her, and not to his own family. His family sued, she lost and they got the estate he would have left to them if he hadn’t been under the influence of this woman.
The English court found that she had used undue influence on him to get him to change his will.Centuries have passed but the same problem exists today. People use their relationship with someone to get them to give money or property to the influencer. We hear about it all the time at AgingParents.com where we work with families helping them deal with issues about aging loved ones. The struggle in families about control over an aging parent’s finances often comes about because someone thinks another family member is using undue influence over a vulnerable elder. And sometimes it’s true!Laws about undue influence vary from state to state. Where I live in CA, we have a really good definition that helps people prove when someone was under undue influence of another person. Keeping it simple and non-legal sounding this is the essence of the definition: Undue influence is excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in something that isn’t in the influenced person’s best interests. A person who is elderly, frail, dependent on others for care or who is undergoing a lot of stress is particularly vulnerable.
The influencer is usually in a position of trust, like a family member or a position of authority over the one being influenced. The person in authority could be a professional, such as a financial advisor or lawyer, or it could be a caregiver.
What are some of the classic warning signs of undue influence?
Here are five of them:
1. The victim is vulnerable, such as shortly after a spouse has died or because he or she has dementia and can’t make good decisions. But a person can be vulnerable just because of being lonely too.
2. The influencer assumes power, authority or control over the one being influenced. This could come from the relationship, where the one being influenced thinks the influencer can be trusted and doesn’t question them.
3. Isolation of the senior, and doing things in secret, in a hurry or because the influencer tells the victim that everyone else is against her.
4. Sudden changes in a long-standing estate plan, including a will and or trust. The so-called “natural heirs” or family are cut out of what they were going to inherit and it goes to someone outside the family as a result of the senior being influenced to make those changes.
5. Something happens that is not fair or reasonable for the victim. For example, another seizes control over their assets and they can no longer choose what to do with them. Or the elder’s home is sold and he is forced to go to a nursing home against his will. These are examples of harm or an unfair result to the victim.
Undue influence is legally related to financial abuse. Harm to the elder in some way is the result and it always involves money, property or an agreement that affects the elder’s welfare.
We hope you have a good idea now of undue influence. If you see any of the warning signs happening to someone in your life, to a client, family member or friend, speak up!
Seek legal advice from an elder law attorney or report the harm you see to Adult Protective Services.
Working together, we can all do something to stop elder abuse.
