The investment industry is starting to plan for a wave of aging clients who at some point may no longer be able to manage the investments they rely on for income.
“I think this has to be one of the most important issues out there for advisers, for families and for regulators,” said James Hunter, head of wealth management at Echelon Wealth Partners.
Mr. Hunter has a personal connection to this issue through his mother, who started to show signs of memory loss and confusion in her mid-70s. But it’s becoming more common at work, too. “At least once a week, I have an adviser come to me not necessarily knowing what to do because they have a client with diminished capacity,” he said. “The issue is compounded if the individual doesn’t have a strong support network, or the family hasn’t done a lot of planning to get ready for this sort of thing.”
Canada’s aging population will result in a big increase in the number of people suffering from diminished mental capacity or dementia. The Alzheimer Society of Canada says there are more than half a million people living with dementia today, and that number is expected to rise to 937,000 by 2031.
Toronto-based Echelon has arranged training for staff on aging and diminished mental capacity, part of which is designed to highlight the signs that someone is losing the ability to properly manage their finances. These signs include:
- Not understanding simple financial concepts.
- Not understanding investment statements.
- Having trouble with basic math.
- Calling repeatedly to ask the same questions.
- Forgetting previous instructions.
- Increased difficulty filling out account-related forms.
- Changes in personality, appearance.
Mr. Hunter said advisers can be more attuned to a decline in a client’s mental state because they have infrequent contact and may notice mental deterioration that family members have adjusted to over time.
Canadian Securities Administrators, a group representing provincial securities commissions, recently published a notice with suggested practices for engaging with older or vulnerable clients. Among them was having a “trusted contact person” listed on client accounts – someone who the firm or adviser could contact if they believe a client is suffering from declining mental capacity or may be subject to financial elder abuse.
“The trusted contact person (TCP) should be an adult (typically a family member, close friend or caregiver) who the client trusts with their personal information,” the notice said. “Ideally, the TCP would not have an interest in the client’s account or assets and would not be involved in making financial decisions with respect to the client’s account (for example, a power of attorney).”
An idea under consideration is to give advisers and firms the ability to put a “temporary hold” on a client’s account. This would apply in cases in which a client provides instructions that are out of character and not in their best interest, or that suggest potential financial exploitation.
One more proposal is the regulatory safe harbour that would protect advisers and firms from possible regulatory sanctions if they temporarily refused client instructions while investigating the situation and reached out to a trusted contact. The challenge with rules such as these is to clearly spell out the circumstances in which advisers and their firms are able to take active steps on a client’s behalf.
Mr. Hunter urged seniors, their families and advisers to prepare for the possibility that diminished mental capacity may at some point in the future affect someone’s ability to supervise their finances. Here are some suggested steps:
- Have a will: This is basic estate planning.
- Have a financial power of attorney, someone who has authority to look after some or all of an individual’s finances and property. (There can also be a power of attorney for personal care.)
- Consider giving trading authority to a family member – authorization for an individual to make trades on someone else’s’ behalf.
- Centralize financial information: Store information about various financial accounts in a place where family members can find it.
Mr. Hunter said it’s easier to deal with a spouse or family member who is suffering from dementia if you take steps in advance. “The more you prepare pragmatically for this, the easier the emotional part of it becomes when it happens.”
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