Aug 1, 2014 | aging, aging investor, Alzheimer's disease, senior investor
As just about everyone was outraged and offended by Donald Sterling’s racist comments, you might wonder how there could be anything to learn from what he said and did in the time that has passed since his story first broke.
To some people, Donald Sterling seemed rational. A horrible racist, but being that way in control of his faculties and choosing to do what he did. Was there something wrong with him or was he just being his racist and unreasonable self? I think his conduct is a good example of how a cognitively impaired person can seem logical and in control one minute and totally out of control the next. And he is an example of how an impaired person can destroy his chances, make bad decisions and have a massive loss. You just might find yourself with a client like that.
Here’s what I mean. Donald Sterling’s comments led to his wife insisting that he be examined by two doctors, psychologists. Both concluded that he had Alzheimer’s Disease. When you saw Sterling on TV, you might have thought, “well, he seems weird, but he apparently knows what he’s doing”. Did he?
A person with Alzheimer’s lacks judgment about finances. That issue was at the very heart of the case when he agreed to sell the L.A. Clippers, and then changed his mind and tried to block the sale in a court battle with his wife. Some might be skeptical about the diagnosis of Alzheimer’s. After all, two billion dollars was at stake and fights over anything that big can bring up just about anything.
But notice this: if you want to win in court, you are going to put on your best behavior. If a judge is looking at you to make a decision about whether you are financially competent or not, you’re not going to do anything that would lead the judge, holding enormous power with his decision, to rule against you. That’s what a reasonable person with ordinary good judgment would do. Even if you’re mad as hell, you’re not going to lose it and prove to the judge just how out of control you are. But lose it is exactly what Sterling did with his chance in court.
Imagine that someone with that much money would hire the most highly skilled lawyers possible. Imagine that they were ready with all possible evidence to refute the allegations of Sterling’s wife that Donald was not competent. And what did he do? He behaved erratically over several days of testimony. He raised his voice at his own lawyers and those opposing him. He called his wife a “pig” in court. In other words, he could not exercise enough good judgment to do what any reasonable person would do in his circumstance. H could not rein in his impulses. He blew it.
Of course, the judge ruled against him. He was found to be incompetent to make a decision to stop the sale of the Clippers and his wife won out.
The lesson here is that people who have dementia, the major symptom of Alzheimer’s Disease, lose their judgment about finances. They may make bad decisions against your advice. They may behave erratically. They may act out one minute and be apparently fine the next. When you have a client who has a history and a pattern of making certain kinds of choices about how to invest his money, and he begins to divert from that, you know it is a red flag that something may be wrong. You know that he could lose his wealth if this keeps up. What are you supposed to do?
Other than escalating the problem to compliance sooner or later, you may not think there are any choices. But we at AgingInvestor.com believe there are choices about how you are going to approach and deal with these problematic clients, whether they are as extreme as Donald Sterling or not. There are options for anticipating the realistic possibility that your clients who are aging are going to become cognitively impaired. You can create innovative policies to manage them in a proactive way, involving family, involving significant others, and complying with privacy considerations. You don’t have to fire the client and lose the assets under management. If you have a clear path that enables you to take protective action and engage a third party whom the client has identified and appointed far in advance, you may be able to work with the appointed person and continue to carry out the wishes and philosophy of your client even if he becomes impaired. We are here to help you craft those policies and we empower you to implement them.
This process can change and disrupt the old, outmoded ways of dealing with our aging investors. It’s radical. It’s different. We think it should be done. If you would like to explore this for yourself or your organization, contact us today at AgingInvestor.com for a preview. We will help you become a change agent and an innovator.
Until next time,
Carolyn Rosenblatt
Jun 12, 2014 | aging, aging investor, Alzheimer's disease, investor
Alice, The Unsophisticated Investor
Alice, my mother in law, is blessed with a great memory and pretty good health for a woman of her age. She works at it. She’s been a widow for 6 years now. Dad always handled their finances. Since she’s been on her own, she relies on her two adult children and an accountant friend to guide her about her investments. She was referred to a financial advisor known by a family member. She thought things were fine until a year went by, the market was doing well and she had no gains at all in her portfolio. She’s comfortable, but not wealthy by most measures. There is enough to take care of her, though full time care would eat up a lot of what she has. Luckily at this time, she is able to remain independent.
When She Discovered The Truth
Alice decided to change financial advisors. It was then that she learned, to her dismay, that her other advisor had done something that really got her angry. He had taken 10% of her investable assets and put them into a real estate investment trust (REIT) that could not be liquidated without a substantial financial penalty to her. She is not savvy about complex investments and relies on others for advice. She relied on her advisor a lot. She is clear that she needs to watch out for herself. She says the advisor never told her what he was doing with this investment and never explained that she would not be able to access the funds if she needed them unless she suffered a loss, in the form of a penalty. He, of course says he told her all about it and she agreed. She doesn’t believe him. My husband, Mikol, interviewed her about this and put it on YouTube. Here’s what Alice has to say. http://tinyurl.com/pmqf3j2
In the July 14, 2013 InvestmentNews, Dan Jamieson reported that the Financial Industry Regulatory Authority and the state regulator in MA are cracking down on exactly the kind of nontraditional, illiquid investment the financial advisor chose for Alice. Mr. Jamieson reports that In February, Massachusetts settled a case against LPL, which agreed to pay at least $2 million in restitution and $500,000 in fines related to the sale of nontraded REITs.
State regulators in Massachusetts settled their cases against five high profile firms who agreed to pay a total of $6.1 million in restitution to investors, and fines totaling $975,000.
FINRA CRACKDOWN
State regulators aren’t the only ones cracking down on alternatives.
FINRA also warned members in 2012 in its annual exam priorities letter that it was “particularly concerned about sales practice abuses [and] yield-chasing behaviors” that might lead investors into unsuitable complex products.
Products under scrutiny by FINRA in 2013 included business development companies, structured products, nontraded REITs and private placements.
“Finra grinds us on structured notes and commodity-linked notes,” said the president of a broker-dealer organization, who asked not to be identified.
The regulators are reported to have found out that in the REIT cases, people didn’t know what they were investing in. We think that is true for Alice. We also think her advisor, knowing her lack of sophistication, took advantage of her for the sake of his commission. His justification is that “she didn’t need the money” and that “she was investing for the benefit of her heirs”. Her family, particularly her son, thinks that is rather arrogant of him. How does he know whether she’ll live to be 100 and whether she will need the money? Furthermore, Alice is not investing “for the benefit of her heirs” when she is relying on her funds to take care of her own needs for the rest of her life.
What We Did
As soon as we found out about the REIT sold to Alice, then 90, and how illiquid it was and for how long, we confronted the advisor with a letter and sent him a copy of the Investment News article. He called shortly afterwards. He tried to justify his actions, but was told very politely by my husband that Alice was to get full restitution or a FINRA complaint would be promptly filed.
Permission of various kinds had to be obtained. The advisor had left his firm and gone with a large bank. This messed things up for him for a time, but I thought he deserved it. This was the threat of a claim. Two lawyers called and argued how great the investment was. We held our own and continued to insist on full restitution for Alice. More excuses. Months of lawyering and letters later, she got full restitution. You’ve never seen more butt-covering letters from them.
The lesson here is to be smarter than this guy was. It’s not that the investment itself was bad. It paid a decent return. It’s that at her age it was clearly unsuitable. So keep the age of your client in mind and don’t make dumb assumptions like, “she didn’t need the money”. That is a foolish statement for anyone to make about a 90 year old with a relatively modest portfolio who could need hundreds of thousands of dollars of care as some seniors do before the ends of their lives.
If you need private advice about any aging client whose behavior makes you question the client’s financial capacity for decisions, call us. We have the expertise to help you assess the client’s abillity and we can guide you.
Don’t wait for FINRA to come knocking.
Until next time,
Carolyn Rosenblatt, RN, Attorney, Mediator
AgingInvestor.com
So, when you get this properly written, be sure that you have garnered about proofreading and editing services 10 points.
Jun 12, 2014 | aging, aging investor, Alzheimer's disease, investor
When Competence Is Neither Black Nor White
Anyone who has spent time around older adults, whether they be family members, friends or your clients, probably knows someone who seems “with it” sometimes and “not with it” at other times. They can change from making sense to not making sense in a matter of minutes or hours. Do you think of this person as competent? Do you overlook all the little “slips” and signs of their not being able to track the conversation? Do you treat the person as if everything were fine and normal? Here at AgingInvestor.com, we refer to the in-between state of mind as the grey zone. It describes a person in a way that is neither black nor white, neither completely without decision-making ability nor completely safe in decision making. It is a variable problem and one nearly all of us are going to witness sooner or later. Why?
(more…)
