As clients’ bodies slow down during the course of retirement, health care costs rise and discretionary spending declines — but what should an advisor do as a client’s ability to think and reason decreases?

Brie Williams, head of practice management at Boston-based State Street Global Advisors, says advisors should plan ahead for a client’s cognitive decline.

“Look at it as a form of risk management,” Williams says. “We purchase insurance to manage the risk of death or disability or in case we need long-term care. Here, you’re planning for one of life’s most unpredictable events.”

Williams watched first hand as her father’s mental status deteriorated during a battle with brain cancer.

Over 18 months, the aggressive cancer took him from an ‘invincible’ figure in Williams’ life to a state of dementia so severe that he was unable to make his own decisions, Williams says, but the onset was so gradual no one recognized it until a seizure drove him off the road at age 65.

“The cause was stage IV glioblastoma, a malignant brain tumor, and it was his kryptonite,” Williams says. “My parents had created a nancial plan long before the diagnosis, but it did not account for the possibility of cognitive decline. The belief was that time was on our side — they were both healthy and embraced turning 60 as the new 50. So there was a bit of a scramble to put the necessary puzzle pieces in place when life threw us a curveball.”

According to The Impact of Aging on Financial Decisions, a report from State Street, the ability to make sound financial decisions is often among the first abilities lost during a person’s cognitive decline.

Williams cites data from the Brookings Institute, which claims that an individual’s ability to make financial decisions peaks in their 50s, and declines sharply through their late 60s and 70s.

“To a certain extent, this is where a financial advisor can step in and help shoulder some of the burden,” Williams says. “However, once something like Alzheimer’s or advanced dementia sets in, it becomes very difficult to put together a plan to address cognitive decline.”

State Street’s research found that 72 percent of advisors say they are providing their clients with substantial information about the impact of aging on financial decisions, however, less than one in five investors, 17 percent, say they have discussed the topic with their advisor, and of those who have, only around a quarter, or 27 percent, are satisfied with the information and support their advisors are giving them around the topic.

Williams argues that in the past advisors have been too focused on the financial aspects of retirement and have paid too little attention to the physical and mental realities of aging.

“It’s a bit of a blind spot,” Williams says. “We don’t take this into account as part of our natural aging process when we plan, so we’re relying on hope for the future as an investment strategy.”

Just 39 percent of investors believe they have a suitable plan for when their own mental status begins to decline, according to the study.

Many investors avoid making plans because they fear the loss of their own independence, they’re overly optimistic, they’re worried about their own mortality, and /or they tend to procrastinate making long-term plans in general.

“We’re hoping that this won’t happen to us,” Williams says. “We’re in denial that this is a real possibility, and we’re transferring that hope over to our investment behavior because we’re hoping that we don’t need assistance at all.”

That may explain why fewer than one-in-three, or 32 percent, of State Street’s respondents have discussed potential cognitive decline with their family.

In some cases, having an advisor initiate discussions on a client’s mental status may lead to planning with family members and other centers of influence, like attorneys or accountants, around the possibility.

“Combining cognitive decline with their family and finances can be overwhelming,” Williams says. “Advisors can serve as an objective sounding board and an impartial expert, there’s an opportunity for them to ensure that they are helping their clients find the right people to help guide them through the conversation, which might require bringing in a social worker, estate planning attorney or an elder care attorney.”

The first symptoms of aging-related cognitive decline appear, on average, in a client’s late 60s, but not all clients are alike, and aging isn’t the only reason an investor’s mental status may deteriorate.

State Street identified three main types of cognitive decline – Alzheimer’s Disease, the most progressive type of decline; dementia, where cognitive lapses begin to interfere with an individual’s daily life; and mild cognitive decline, or minor lapses in an individual’s short term memory. Reports from the Alzheimer’s Association estimate that 10 to 25 percent of Americans older than 65 suffer from mild cognitive decline.

“Many people will live out their lives with nothing more than some lapses in their memory,” Williams says. “Given the sheer size, demographically, of the baby boomer generation, advisors are going to want to get in front of this issue.”

As the baby boomer generation proceeds through retirement, advisors should be on the lookout for potential lapses in cognitive ability and the fraud and exploitation that often follow, Williams says.

“If a client is being asked to transfer money to an unknown relative, or is calling you about a ‘great investment idea,’ you want to dig deeper on those things,” she notes.

Planning ahead can help protect a client from elder exploitation and abuse, says Williams, arguing that clients should be engaged in these discussions in their 40s and 50s, not as they enter retirement.

“Cognitive decline influences our day-to-day decision making and our financial decision making, but our confidence isn’t always impacted,” Williams says. “It’s more difficult to bring this up after it’s already occurring because we might not even recognize our own cognitive decline.”

Advisors can head-off concerns about potential litigation from clients over a delayed or refused wire transfer or other form of protection by discussing cognitive decline as early as possible, Williams says.

While discussions are a starting point, formal documentation like a power of attorney that gives a trusted family member or friend the ability to take over financial decisions in the case of decline, and a letter of incapacity that permits an advisor to contact the designated power of attorney if they suspect a client is suffering from cognitive decline, are necessary to make sure clients’ plans are executed.

At the same time, financial advisors, whose average age is in the mid-to-upper 50s by most estimates, need to make preparations for their own potential congnitive deterioration.

“Ideally, these advisors have been discussing the possibility with their clients before they reach their 50s,” Williams says “If they’re a solo practitioner at that age, they should have a succession plan in place, whether it be an internal successor, a merger or an outright sale of the business. It’s important that the client knows the plan, so they know how their assets are protected. That’s a peace of mind communication that every advisors should engage in with their clients.”

State Street surveyed 400 financial advisors and 560 investors in early 2015 for its study.