The authors, Carolyn Rosenblatt and Mikol Davis, will be presenting a webinar on this topic on March 29. All subscribers to our newsletters will receive an invitation to attend this webinar in the next two weeks.
Diminished cognitive skills, often the result of Alzheimer’s disease, are the greatest threat to the financial stability of your older clients, particularly those over age 65. A new book directed to advisors provides the tools to identify and overcome those threats.
By 2020, nearly one in six Americans will be 65 or older. The scary truth is that the likelihood of developing Alzheimer’s doubles about every five years after 65. After 85, it increases even faster, with one in three people that age and older being diagnosed with the disease — with some estimates as high as 50%, with two-thirds being women.
It would be great if no one ever developed dementia or lost the ability to make financial decisions. But our population is aging, and with advances in medical science that keep people alive longer, we’ll soon be seeing more walkers and wheelchairs on the streets than baby strollers. Unfortunately, financial abuse (theft and fraud) committed against those with diminished capacity has grown so rapidly that it has been called the “crime of the century,” costing $36 billion a year. In reality, that cost is likely much higher, because so much abuse goes unreported due to fear of retribution and shame. As one example, according to the National Center on Elder Abuse, as few as 44 in 1,000 cases of financial abuse by a family member are reported to authorities.
Aging experts Carolyn Rosenblatt, a nurse and elder law attorney, and Dr. Mikol Davis, a geriatric psychologist, have written an important book on the financial risks of aging. While the book, Succeed with Senior Clients: A Financial Advisor’s Guide to Best Practices, is written specifically for financial advisors, the important insights and suggested actions the authors provide make it mandatory reading not only for those either approaching or already in retirement, but also for anyone with a family member in those categories.
Why you need to know about dementia and Alzheimer’s
As Rosenblatt and Davis highlight throughout the book, dementia destroys a person’s ability to see dangers, to measure the wisdom of their actions and to remember things, especially over the short term. Because the disease’s progression is often subtle (but deadly) those around someone developing the disease may not realize how vulnerable the affected person may be. They note that its effects are often nearly invisible at first, and may appear sporadically, inconsistently and unpredictably. Yet, studies have shown that financial capacity is already significantly impaired in people with even mild Alzheimer’s. In the moderate stage, such capacity is severely impaired. Complicating the problem is that affected individuals often don’t even realize that they are impaired, a problem called anosognosia (brain-cell damage leading to a lack of self-awareness). That can lead to their resisting efforts to help them.
Identifying signs of cognitive impairment
One of the many strong points of the book is that it provides a series of checklists. For example, to help advisors identify the signs of cognitive decline in clients that can impact financial capacity, Rosenblatt and Davis provide this list:
- Memory loss: Signs such as multiple phone calls from clients on the same day that are repetitive, forgetting why they had set up appointments/meetings, and completely forgetting events took place (especially recent ones);
- Comprehension difficulty: When once-simple concepts for the client to understand require multiple explanations, and even then they appear not to comprehend;
- Communications problems: Trouble finding words they want to express, using vague and disorganized language, and an inability to describe things accurately;
- Lack of mental flexibility: Stubbornness and inflexibility, leading to the inability to acknowledge that alternatives are in their best interests;
- Disorientation: Such as getting lost going to a familiar place;
- Unusual emotional distress: Becoming easily “freaked out” and going through a wide range of emotions in a brief conversation;
- Being emotionally inappropriate for the situation: Laughing when one should be sad, or vice versa;
- Experiencing delusions: Becoming fixated on things that are not true;
- Experiencing hallucinations; and
Nine areas of financial capacity
The authors provide another checklist to help identify impairment of financial capacity:
- Basic money skill: Being unable to identify the value of coins and currency;
- Financial conceptual knowledge: Failing to understand basic concepts, such as the issues/risks of a loan;
- Cash transactions: Not understanding how much to pay, including differentiating between a price increase and a reduction;
- Checkbook management: Being unable to balance an account;
- Basic statement management: Being unable to understand brokerage statements and reconcile transactions and balances;
- Financial judgment: Being unable to spot a scam;
- Bill payment: Not understanding bills or identifying and questioning errors, as well not knowing the consequences of having unpaid bills;
- Knowledge of personal assets and estate: Lacking knowledge of income, value of assets and spending capacity; and
- Investment decision-making: Not being able to engage in and understand the consequences (risks) of an investment decision.
Another strong point of the book is the many case studies the authors offer from their practice, which provide specific examples of elder abuse related to family members and caregivers. Again, the authors provide checklists to help minimize risks. For example, they recommend:
- Using only licensed agencies to supply caregivers;
- Removing valuable items that could be stolen by a caregiver, removing temptation;
- Never allowing caregivers to have access to cash, debit or credit cards;
- Being conscious of the risks of telephone scams, internet thieves and “front-door fraud.” They provide a list of agencies that provide educational material that provide tips to prevent scams; and
- Using advisors who are fiduciaries.
The important Role of fiduciaries and trustees
Rosenblatt and Davis also discuss the importance of designating trustees and fiduciaries who can provide assistance, be they a friend, family member or a professional. Arranging for someone to take over should someone become financially or medically incapacitated is a necessary condition for having a well-thought-out estate plan. (Does yours incorporate such components?) Yet, less than half the population even has an estate plan, let alone one that adequately addresses this specific issue. Estate plans are not just for the wealthy. At the very least, everyone should have a will and durable powers of attorney for health and financial matters (if you don’t, you need to make correcting that oversight an urgent priority).
Because those afflicted with Alzheimer’s are typically either unaware of the condition or stubbornly resist help, it’s important to address the problem before its onset. This may include, for example, getting permission in legal documents to contact a trusted third party when the signs of cognitive impairment are noted. Otherwise, confidentiality laws, such as HIPAA, may prevent appropriate action from being taken.
Throughout the book, Rosenblatt and Davis supply the names of government organizations, legal organizations and nonprofits that serve the elderly and can help.
The authors offer a roadmap to holding a successful family meeting for addressing the complex and emotional issues related to cognitive decline, as well as to the cost of care and its implications. Among their suggestions are to have an agenda and to keep the first meeting brief, with few items. They also provide specific examples of dialogues to help have these difficult conversations.
Risks for advisors
Financial advisors need to be aware that regulators are increasing their scrutiny in the eldercare area and are requiring a lot more from advisors. Both FINRA and the SEC are urging that advisors change the way they do business with older clients to identify signs of cognitive decline and taking action to prevent abuses. Those who ignore those warnings could face significant financial risks.
Firms need to train advisors to spot the signs of cognitive decline and increase the frequency of communication with elder clients, making sure they are up to date on changes in health, financial needs and life events. Again, Rosenblatt and Davis provide checklists of questions that advisors should ask on a regular basis. They also urge that advisors collect the names of older clients’ other trusted advisors, individuals the advisor has permission to contact if he or she develops concerns.
The goal is to create a system to take action in the window of opportunity after noting the concern but before the client has lost all ability to make good financial decisions.
Summary
Age-related cognitive impairment is an issue that affects everyone, not just our parents and grandparents. That is because siblings, children and grandchildren can be impacted financially (as the estates of the family can be eroded), and may have to provide care. That can be financially and emotionally draining, as people can live with Alzheimer’s for a decade or longer. The fact that we are living longer, and science continues to advance our ability to do so, compounds the problem.
I strongly recommend that you read this book and get a copy of the authors’ companion book, “Hidden Truths About Retirement & Long Term Care.” It, too, is written specifically for financial advisors, but has important lessons for everyone.
Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.
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