As Americans ages, advisors are going to need a plan to help protect their clients and their firms from the risks that will arise from increasing cases of client dementia, according to a whitepaper by Whealthcare Solutions.
Advisors also will need additional training in how to protect clients suffering from diminished mental capacity due to aging, Wealthcare said in a report released yesterday enttiled, “Cognitive Overload: The Coming Surge In Diminished Capacity Cases And What Wealth Management Firms Can Do To Protect Their Clients And Themselves.”
“Financial advisory firms will be increasingly challenged to help clients as the demographic age wave continues rolling into retirement,” Whealthcare said. “The median age of 69 million baby boomers reaches 65 in 2021, creating an inflection point of the surge. The oldest boomers are now 75, where the risks of cognitive, behavioral and financial literacy issues can multiply.”
“Absent a major breakthrough in the treatment of Alzheimer’s and other forms of dementia, the prevalence of diminished capacity in financial wealth management clients will increase,” the report said. “Based on the available statistics on the frequency of Alzheimer’s, other forms of dementia, and mild cognitive impairment, upwards of 25% or more of an average firm’s clients are already at risk. This suggests that 25% or more of the average firm’s total assets under management are similarly at risk.
“Strategies are needed and practical capabilities required to assess and evaluate the risks faced by aging clients and their families,” Whealthcare added. “Firms can take steps to protect clients proactively by offering tools that warn clients of potential risks and fraud – but adoption of these tools requires more industry attention. Adding a true clinical perspective is also important, especially with respect to more consistent and accurate evaluation of the clients.”
Whealthcare offered some guidelines for advisory firms to cope with the upcoming crisis.
Firms need to obtain, and keep current, information about clients’ trusted contacts who can be called if the client seems to be suffering from dementia. “Unfortunately, studies have found that many elder fraud cases are perpetrated by adult children of the senior. For this reason, considering the designation of two children or a professional and an adult child may be advisable” as a trusted contact," the report said.
At the same time, firms should provide advisors with training on how to identify and manage clients with diminished capacity. Wealthcare said firms should consider input from psychiatrists, geriatricians, neurologists, elder law attorneys, prosecutors and geriatric care managers, who work in the elder care space.
“Effective and frequent client communication is essential to protecting your client, and your firm, from the risk posed by diminished capacity,” the report said. “Implementing client transaction firewalls, such as alerts for specified account activities that include notifications to trusted contacts” can be useful.
Particular actions should raise alarm bells for advisors. For instance, “scammers rarely steal from seniors by withdrawing one large amount from one account at one institution in one transaction. They routinely initiate their scheme with a small test transaction, followed by activity affecting a number of accounts, including checking, savings, investment, retirement and credit cards,” according to the report.
“The goal is to create an alliance between you and the client,” said Dr. Anthony Weiner, who is with Massachusetts General Hospital and was a resource for the report. Advisors should need to demonstrate that they are on the client’s side, and are always looking out for the client’s best interests, he added.