As the baby boomer population ages, financial advisors will be in a position to first notice the telltale signs of cognitive decline among members of that generation, industry officials say.
That's why advisors should start preparing to deal with such situations, they said.
“Part of our fiduciary duty is to be alert to changes in clients as they age,” said Kevin D. Avent, managing director of American Trust Wealth, a wealth management firm with $1.1 billion in client assets based in Lexington, Ken. “We are trained to watch for certain behavior such as a client who once knew what his or her finances were, but no longer understands; or a client who cannot remember conversations; or someone who suddenly starts spending money where he or she was frugal in the past.”
Anne Marie Stonich, head of the wealth strategy group at Coldstream Wealth Management, a wealth management firm with offices in the Pacific Northwest and Alaska, emphasized that firms need to have plans for these circumstances ahead of time. She helped develop a multistep program at Coldstream to address cognitive decline in clients.
“We plan for these difficult situations, including what legal steps need to be taken and what strategies we need to execute to ensure everyone is protected as the reality of the situation sets in,” she said. “We have a best practice approach for training and we share our experiences. This is often a unique opportunity to help clients because we have the insight and we may notice the small changes that warn of cognitive decline early on.”
It is important to share the training with younger advisors, so they can be aware of the red flags to watch for, she added.
Kyle Thompson, a senior wealth advisor at SageView Advisory Group, a wealth management firm based in Newport Beach, Calif., that focuses on planning for retirees, said no two client cases are the same, but advisors can learn about their options by examining individual cases.
“The first step an advisor should take when he or she suspects cognitive impairment in a client is to document all conversations with the client,” Thompson said. The advisor also should report to the firm’s compliance department to make sure proper protocols are followed, he added.
The second step is to act quickly at the first signs of unusual behavior and be proactive.
“It helps if you have had a meeting with family members or with a trusted contact before there is any sign of mental decline in the client so that the family understands what might happen and what is needed of them,” he said.
SageView deals with these types of situations on an almost weekly basis and trains advisors to handle the situations, he said. “They know to watch for clients who may be forgetting things or who suddenly cannot deal with paperwork. That often is when we get the power of attorney for the client involved,” he said.
Another warning sign for advisors is if they suspect someone or some organization is exerting undue influence over a client because the client is less aware of particular situations, Coldstream’s Stonich said.
“This can even happen with unscrupulous charities. ... Advisors have a unique opportunity to intervene because we should have insight into our clients’ personalities—we are in contact at an early point so we can notice small character changes,” Stonich said. “We can act quickly to protect the client’s assets and alert the family."
Coldstream has a list of resources at its disposal, including medical research facilities, to help deal with such situations, she said.
“I have one situation now where a charity that is named in the will of a client experiencing dementia has gone out of business,” Stonich said. The firm is consulting attorneys to see what options they have for making changes on behalf of the client.
“Situations like this are where the durable power of attorney is so important to protect the client,” Stonich said.
It is important to confirm verbally and in writing what took place at each client meeting to make sure he or she understands what was discussed, she said.
Having a defined process for the firm is kay, advisors said.
Avent said the process starts with the initial relationship and making sure all documents to establish a trusted contact, as well as estate planning and a will, are in place.
“We want the client to name a trusted contact so that, if something seems amiss, we have someone to go to that the client has faith in,” Avent said. “These are delicate situations and I have seen more and more of them arise recently. It can create chaos if arrangements and understandings are not set ahead of time.”