For Barbara McMahon, a senior financial advisor with
Waddell & Reed LLC in Kansas City, Mo., the incident was a defining
moment, an indicator something was amiss. One day last year her client,
a woman in her eighties, took a can of Campbell's soup from the
cupboard for lunch, put it in her microwave and tried to heat it
without opening the can.
"She used to be coherent. I thought she was fine. That's when we realized something was wrong," says McMahon.
What do you do when clients show signs of incipient
Alzheimer's disease or dementia? As a financial advisor, you're
responsible for their assets. "Perhaps they've been your client 15
years, and then they start calling and asking the same question two or
three times," says wealth manager Mark LaSpisa, a principal of
Vermillion Financial Advisors LLC in suburban Chicago, some of whose
clients from time to time have exhibited signs of diminished acuity.
"It's not a question of if; it's a question of when," he says.
As the exploding number of retiring baby boomers
continues to age, chances are this will be an increasing challenge for
wealth managers and advisors. Consider this: Nearly five million
Americans have Alzheimer's today, with that number projected to grow to
11 million to 16 million over the next several decades, according to
the Alzheimer's Association.
"We are all aware of the boomers, and the aging of
our population," says Vance Clanton, a CFP in Atlanta, whose practice
encompasses many retirees. "What many of us don't know is that the
incidence or frequency of dementia increases as we age." Often, the
presenting symptoms are the inability to manage daily and financial
tasks, such as paying bills, balancing the checkbook or even writing
checks, says the Alzheimer's Association. Clanton knows the effects of
Alzheimer's personally. His mother's dementia was diagnosed when she
was in her seventies. She lived until she was 85.
We have all heard stories of friends and relatives
in the later stages of dementia. It is the early stages that pose the
greatest problem for financial advisors. In the early years, the
disease can begin with short-term memory loss. It might be when a
client shows up for an appointment at the wrong time or the wrong day.
You might find that a client places an order and then honestly can't
remember doing it. The client may question a confirmation, not
remembering having placed the order. The best course of action is to
just be aware that there might be a medical condition behind a change
in behavior.
Clanton adds: "As you might imagine, in the early
stages of dementia, clients are often frightened and are sensitive
about their loss of capacity. They know that something is not right.
Often, they may tell you. It may take the form of a joke to disarm an
uncomfortable situation. The best advice I can share is to pay
attention."
LaSpisa's first case happened about ten years ago.
The clients, a husband and wife in their eighties, began showing signs
of Alzheimer's. Since then, several other clients have also shown signs
of diminished mental acuity. Each case has been slightly different, and
LaSpisa has dealt with them all by first contacting the designee to
discuss key concerns and to assist with decisions relating to the
client. Often this requires serious diplomacy. Sometimes after talking
to the liaison, LaSpisa finds the reason is as simple as a recent
medication change requiring no immediate action.
"By eliminating such problems," says LaSpisa, "you
can move forward to decide who should be notified in the family. Should
the process be started to transfer authority to a successor trustee or
an agent using a power of attorney? Does someone need to step in and
start monitoring the client's mail and payment of bills? Are
medications being taken? Can the client live alone? Who wants to assume
responsibility?"
LaSpisa now has clients who are 70 or older
regardless of their mental condition, sign a "family liaison
authorization" agreement. This authorizes the firm, following each
appointment or phone call, to notify the liaison designated by the
client about changes observed in the client's behavior, and what
recommendations are being implemented. "By having the liaison, it helps
reduce liability from lawsuits from future beneficiaries, since there
are no surprises," says LaSpisa. "No one can say after the fact that
something should have been done or what was done wasn't appropriate."
As a side benefit of the family liaison program,
LaSpisa has had instances where children who previously were clueless
about their parents' finances become clients as a result of the
process. Stuart Speer, a CFP licensee with Heritage Advisors LLC in
Overland Park, Kan., has an unusual way to test a client's acuity. He
uses a cognition test to make a private assessment. From the raw test
results, he draws conclusions that he doesn't share, "Lest I be accused
of the unlicensed practice of medicine."
"If I apply for long-term care insurance on behalf
of the client," Speer says, "I feel obligated to inform the prospective
insurer of all relevant facts; for instance, that I noticed a tank of
oxygen or a triple cane in the client's house. However, I could not
mention the cognition test or its results because I'm not, as a matter
of law, competent to interpret those results. I must report facts, not
unschooled speculation."
A major danger, of course, is the possibility of a
person with diminished capacity attracting fraudsters. "They desire the
prize the scam artist is presenting so much that they're willing to
forego any disbelief in the hopes that somehow it could be true," says
Bob Rockwell, a CFP with CCB Financial Services in Sandy, Ore.
Such was the case recently when a client in her
eighties notified Rockwell that she had received a letter announcing
she had won a $43 million Portugal lottery, and then a "nice attorney"
had called and offered to help her collect her winnings for a mere
$1,600 for his services. When she told Rockwell she'd sent a kind of
down payment of $20 to Portugal, he tried to locate the scam artists,
but only succeeded in reaching an answering machine with an "800"
number. He sent the details of the fraud to the adult senior abuse
services of the Oregon Consumer Protection Agency.
"Fortunately," he says, "I had picked up on her
vulnerability years before, and as a result recommended she purchase an
immediate annuity that would guarantee her a monthly income for life
that she couldn't get talked out of. A single premium annuity helps
them avoid squandering their money because it works like a pension; you
get a monthly income for life."
A client of Rodney M. Loesch, another CFP licensee
at Waddell & Reed, based in Columbia, Mo., gave him a dividend
statement on $3.8 million in investable assets for Sun Microsystems and
"didn't even understand he owned it," says Loesch. The client's
daughter ended up obtaining a conservatorship, meaning a court declared
that she could act in her father's interests. To protect himself
against possible liability, Loesch makes it a habit to document every
activity with each client in his practice in a database, even when he
sends them birthday cards. "It's always in the back of my mind: I may
have $10 million in E&O (errors and omissions) insurance, but it
has a $5,000 deductible."
How can you guard against possible litigation in
such matters? Scott Meyer, an estate planning attorney at Montgomery,
McCracken, Walker and Rhoads LLP in Philadelphia, has been involved in
a number of litigation matters where financial advisors for such
persons have unfortunately become embroiled in family litigation,
One crucial protection tool he recommends is to
guide the client into getting a durable power of attorney, a written
instrument in which the principal authorizes another to act for them.
It's best if the client engages an attorney to draft this document,
says Meyer, but the Internet has resources for do-it-yourselfers. "The
financial advisor's authority to act is based on a person's legal
capacity, and if you ignore strong signals that the client lacks
capacity, you're opening yourself up to liability," warns Meyer.
That's the path that McMahon and her clients'
families took. "When we realized something was wrong, I encouraged the
families to get powers of attorney in place because it was clear to me
at some point the families would have to take over their relatives'
affairs, and that's exactly what happened." McMahon was rewarded for
her efforts on their behalf as the children and grandchildren have
since signed on as clients.
For extreme cases of diminished capacity, Meyer
advises referring the client to a state or local senior citizens
intervention social agency, which in some jurisdictions has
governmental authority to interview such people and render assistance.
On occasion, relatives and sometimes mere
acquaintances may try to take advantage of persons who lack full
capacity, which could result in the advisor getting caught up in
litigation. According to Meyer, such individuals can be sued under
what's known as the "doctrine of undue influence." "The advisor has got
to be careful not to aid or abet an individual who is actually
subverting the (client's) real wishes," he says. "For example, if one
child is controlling access or cutting off information to other heirs,
the court could say that the child is overmastering the client's free
will and take corrective action."
Meyer also recommends that advisors carefully review
their financial contracts with clients, and specify what sorts of tasks
are not being delegated, particularly with regard to trusts. Under a
still-evolving doctrine, advisors need to work out language with the
client that in effect states that it is understood the advisor is not
an agent for either investment or management purposes under the
"Prudent Investor Act." Some advisors will be surprised to discover
that standard arbitration clauses may not cover certain
responsibilities delegated to the advisor by a trustee, he
says.