It’s a sad fact that nobody wants to face.

With the aging population, the incidences of cognitive decline are increasing. By age 70, according to the National Institutes of Health, roughly two-thirds of Americans are likely to experience a degree of intellectual incapacity.

For financial advisors, the possibility of losing cognitive capabilities represents a huge risk. Data analytics giant J.D. Power estimates that the average financial advisor in the U.S. is 56 years old. But most firms are unprepared for the potential mental deterioration of their key professionals.

What can be done to address this problem?

Make a Plan
“If you are talking to your clients about their potential cognitive decline, you should also be talking about your own,” said Erin Wood, a senior vice president at Carson Group in Omaha, Neb. “Telling clients about your established plans for your own cognitive decline not only shows the clients how important it is, but gives them confidence to know they will be taken care of.”

To Wood, preparing for advisors’ potential loss of capacity should be part of routine succession planning. “Firms typically have not spent enough time talking with advisors about their succession plan,” she stressed. “Instead, most events are centered around growing your practice and your skills. But with an aging population, it’s more and more important that firms help advisors find the next generation of advisors who are willing and able to rise up and lead.”

At her firm, she said, there are established procedures for helping both clients and advisors cope with a host of age-related illnesses. “Additional advisors and operational support [are] available to assist with adjustments to the next stage,” she said.

Start Early
Brett Bernstein, CEO of XML Financial Group in Bethesda, Md., might agree. “Firms need to think about their aging advisors just as we do with aging clients,” he said.

How exactly should firms prepare for cognitive decline in their advisors? “Start early,” he said. “If you are early in your planning, it allows you to avoid any potential issues [and] integrate a few younger advisors for a smooth and seamless transition.”

To Bernstein, advisors are never too young to start thinking about the issue. But whenever it’s addressed, be sure to include the aging advisors themselves. “Find a solution that's suitable for everyone,” he said. “Ask questions of the aging advisors, no matter how uncomfortable the questions may be. This way, everyone is on the same page.”

Precisely what the solution entails “depends on the size and culture of the firm,” he said. “It’s a case-by-case situation.” However, involving anyone who is close to the advisor, as well as superiors and representatives from human resources, legal, and compliance departments, can facilitate these conversations, he noted.

“But if you feel the advisor, clients, or firm are at risk,” he added, “then you need to work for a solution swiftly.”

The First Signs Of Trouble
Unfortunately, the first signs of cognitive trouble are typically hard to detect, said Carson Group’s Wood. “It usually starts with memory slips about something the person absolutely would have known normally, which most people laugh at and dismiss as ‘old age,’” she said. “This is the beginning of where firms should begin to take note. Yes, everyone has days where they are cloudy, but with cognitive decline, these days will become the normal.”

What happens next may depend on the size of the firm and how closeknit the team is.

“One of the first things a person should do is contact the firm’s compliance and supervision department,” said Wood, “or reach out to their custodian for guidance on the established polices. … Any time something seems out of ordinary, the firm’s oversight procedures should kick in to limit the risk for clients.”

Three Safeguards
To be sure, firms should have safeguards and procedures in place. Scott Matasar, a managing partner at Matasar Jacobs, a legal practice in Cleveland that specializes in representing broker-dealers, life insurance carriers, and other financial institutions, recommended three policy measures.

First, institute a mandatory retirement age for advisors “with a mechanism that triggers the sale of their book of business either to the firm or to one or more designated advisors at the firm,” he said.

Second, require periodic cognitive testing after a certain age, he said.

“The third is to impress upon advisors to enter into contingency succession agreements with one or more advisors in their office, triggered by both death and permanent disability—with the definition of ‘permanent disability’ to include cognitive decline,” he continued.

These three policies should be implemented across-the-board for all advisors, said Matasar, particularly when they reach a certain age. “While firms have implemented detailed procedures in recent years about how to address clients showing signs of cognitive decline,” he said, “advisors with those issues haven’t gotten nearly the same level of attention.”

A Team Approach
In addition, Matasar suggested encouraging advisors to work as a team. Even if they manage their own roster of client accounts, he said, it’s a good idea to have advisors meet with other team members every few weeks.

“This will allow younger members to be aware of changes in their colleagues’ cognitive abilities,” he said. “Firms need … a culture of openness where those younger advisors, if they see a problem, feel comfortable reporting it to local management without fear of retribution.”

Matasar added that it might be prudent to check with the advisor’s spouse to see if any red flags have been detected at home, too. Spouses are often the first to catch signals of encroaching cognitive decline.