“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.