With age comes wisdom—especially in the realm of investing and providing financial advice. Advisors who have been in the business for many decades bring a tremendous contribution of perspective to any client relationship. Indeed, many of our nation's most celebrated financial wizards have long since passed the traditional age of retirement, and yet are still outperforming many of their younger peers.

But what if those senior advisors begin to show signs of mental impairment—to the point at which they can no longer appropriately service their clients and safeguard their best interests? With an American being diagnosed with Alzheimer's every 67 seconds, leading to 1 in 9 Americans 65 or older living with this disease, dementia and diminished mental capacity has become one of the fastest-growing causes of death over the last 10 years in individuals 65 or older. 

While much has been written about the challenges of dealing with aging clients whose mental faculties have become compromised (Cerulli Associates states that on average every advisor has 7 clients with Alzheimer's), we are just beginning to create a body of knowledge that deals with the concerns and procedures for intervening when an advisor is no longer capable of fulfilling his or her professional duties.

At a special conference roundtable event convened as part of the annual National Conference for Triad Advisors, the hybrid advisor-focused independent broker-dealer, in Boca Raton, Fla., a panel of industry experts, including seasoned independent advisors and broker-dealer leaders, discussed the key considerations to take into account for advisors facing mental impairment or dementia—and how to prevent this from becoming a business problem before it ever arises.

Some Key Considerations

As the diminution of an advisor’s abilities becomes manifest, there are several key considerations to take into account. These include:

·       Legal liabilities. This is a topic rife with complications. Who is responsible if it becomes evident that an advisor is impaired? Is it the client’s responsibility to monitor the relationship? The advisor's staff's or family's? The broker-dealer’s? Who is on the front line of accountability and what are the potential dangers?  

·       The viability of the business. When an advisor has worked a lifetime to build a practice, if it becomes apparent that he cannot continue to ply his trade as before—or if it just begins to hint in that direction—one of the key concerns is ensuring that the business maintains continuity. A good practice holds significant value, and an effective succession plan needs to be implemented in a manner that preserves value for the advisor and for those others who may be dependent upon him, including colleagues and family.

·       The advisor’s dignity and self-respect. The last thing one would want to do to an advisor who begins to demonstrate impairment is to summarily shut him down. That can backfire, and make the advisor dig in his heels and refuse to recognize his own diminishing skills.

Preventing A Problem Before It Arises

And so, what steps might a broker-dealer consider to forestall any mishaps that might arise, and how should one respond to a situation that has crossed a line? As we have begun to consider the real possibilities of such occurrences, here are some of the key procedures and initiatives that a broker-dealer might undertake:

·       Cultivate good relations with the advisor’s family.  When the time comes to take action for transitioning an advisor away from his or her practice, it may not be sufficient to simply attempt to persuade the advisor to step aside. Having a good relationship with the advisor’s co-workers is important, but they are often not in a position of effective influence. However, forging a good relationship with an advisor’s spouse or children can be vital in engaging allies in the effort to bring the advisor around to your position and may serve to exert the gentle yet convincing leverage that may be needed to help the advisor relinquish control. Part of cultivating this relationship is establishing a privacy policy that will allow the broker-dealer to discuss material things with certain named parties. This policy needs to be in place before any impairment occurs with the understanding that these procedures are all meant to ensure the investor is protected, and the level of service that the advisor provides continues through a transition.

·       Determine if the advisor has a good succession plan. Even before any impairment becomes apparent, any advisory should have a workable succession plan in place for transferring ownership while preserving value.  

·       Be prepared to step in if necessary. An abrupt change of control is not desirable, but it may become a necessity if an advisor clearly shows impairment. In such an event, it is best to act swiftly to avoid negative outcomes, ranging from embarrassment to legal liability.

In Gulliver’s Travels—which people generally think of in terms of the author’s fantastical journeys to the lands of giants and tiny people—Jonathan Swift also wrote satirically about a land where people never die. But in this land, immortality was not a pleasant prospect—the inhabitants just grew older and progressively deteriorated. It made for a grim existence.

Although we are not yet confronted with that dilemma, unfortunately, the longer our life spans grow, the more frequently we encounter signs of dementia in our colleagues and loved ones. For their sake, and for the sake of their families, coworkers and clients, at least we can be prepared to step in at an appropriate moment to help smooth the transition and conserve the value of their business.

Jeff Rosenthal is executive vice president and CMO at Triad Advisors (www.triad-advisors.com), the hybrid advisor-focused independent broker-dealer. Mr. Rosenthal served as moderator for a special roundtable on addressing the challenges of the aging out of the advisor population at the annual Triad Advisors National Conference held in Boca Raton, Fla.