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Phyllis Fehr is a senior with early-onset dementia who has taken steps to protect her financial wellbeing.

Tara Walton/Globe and Mail

Phyllis Fehr realized she had a problem on a trip to Florida six years ago. Rifling through a rack of baby clothes as she shopped for her new grandchild, the then-53-year-old struggled with the pricing.

“I was shopping and I couldn’t figure out the conversion,” said Ms. Fehr, who spent far more than she had intended. “The number of bags I came home with was unbelievable – 20 pairs of stretchy pants in every colour.”

For Ms. Fehr, who lives in Hamilton, the absence of good financial judgment signalled early onset dementia, with which she was soon formally diagnosed. She had struggled with memory loss, and the inability to multitask and make decisions in her late 40s – symptoms that have become worse with time. But rather than wait for the disease to take its course, Ms. Fehr mobilized, setting up financial safeguards in the weeks before even receiving an official diagnosis.

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She started by putting limits on her bank and credit cards. “I can only take out $50 a day on my bank card,” she says. “On the Visa, I can take out $250 a day or $1,000 max a month.”

Cognitive issues such as dementia, Alzheimer’s disease or mental-health issues such as depression, bipolar disorder or schizophrenia can lead to diminished financial capacity. This can present a major challenge for individuals and their families.

Many people with a mental illness fail to recognize their level of impairment and because of privacy rules, can end up making poor financial decisions or can fall prey to unscrupulous advisers. They need protection.

“If someone is going into a mental-health crisis, they may not be looking at the big picture,” says Adam Wiseman, a manager with the Assertive Community Treatment program at the Canadian Mental Health Association in Toronto. “They can do a lot of harm to their financial well-being.”

Worse, financial advisers aren’t sure how to help their clients – even though they want to. In recent research conducted with advisers for Bridgehouse Asset Managers by Navigator Ltd., 72 per cent reported having to deal with clients suffering from anxiety; 64 per cent, diminished financial capacity; 54 per cent, depression; and 34 per cent, substance abuse. The survey also found the majority of advisers want guidance on how to support affected clients, with 88 per cent seeking a “transition kit” for dealing with Alzheimer’s and dementia and also continuing education related to mental health.

“One in five Canadians will experience a mental-health illness in any given year,” says Carol Lynde, chief operating officer at Bridgehouse in Toronto. “We were hearing a lot of anecdotes about clients with diminished financial capacity.”

The science backs up Ms. Lynde’s findings, highlighting how mental-health illnesses can profoundly affect financial decision-making. A 2016 article in the Journal of the American Psychological Association reviewed many studies on Alzheimer’s disease and found that an inability to make financial decisions is an early change that can accompany cognitive decline. And a 2011 U.S. study found that depressed individuals make less productive decisions and engage fewer adaptive decision-making strategies.

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What families can do

John Horwood, director of wealth management at Richardson GMP in Toronto, sees many clients struggling with mental-health issues. He says families need to take steps to protect their loved one – and themselves – from missed credit-card payments, bad investment decisions and excessive spending leading to debt. “If you have a serious mental illness, you need to build an ecosystem around that family member,” he says.

This can begin with appointing a power of attorney, Mr. Horwood says. Then “limit access to those funds,” by adding a family member to a chequing account (requiring their approval for withdrawals), or setting limits on bank cards or credit cards, he says. He also suggests looking at who manages all assets. “Who is making decisions on the ownership of the family home?” he says.

Even with these safeguards, the individual’s privacy can often supersede the family’s wishes and provisions. Toronto resident Donna Rusk (a pseudonym) has watched as her 86-year-old mother has mishandled her finances as her diagnosis moved from bipolar disorder to schizoaffective disorder, characterized by hallucinations or delusions, as well as mania and depression.

Her mother recently hired a lawyer to sue Ms. Rusk, who has power of attorney, falsely accusing her of stealing thousands from her bank account – he didn’t take the case after an investigation found no money was missing. “I got to sign the [lawyer’s] cheque,” says Ms. Rusk wryly.

Ms. Rusk says that in cases like hers, a power of attorney “is no power at all. She wants her power back,” she says of her mother, who is currently planning on suing the assessor who argued she set up a power of attorney in the first place.

Ms. Rusk has also watched helplessly as her mother goes into manic investment phases. “Her financial planner would get calls in the middle of the night,” she says. “It would be ‘Buy, Buy, Sell, Sell.’ ” When she’s medicated and not having symptoms, “She speaks with such authority that if you don’t know her you think that she’s all right,” she says.

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Ms. Rusk has had conversations with the financial planner about her mother’s condition. But she worries that her mother will simply find someone else to invest with. “Those who have an opportunity to make money, they will take advantage,” she says.

Ms. Fehr agrees that is a major concern. She suggests that individuals act as soon as they have a diagnosis – and that families do the same – before a person is seriously incapacitated. At the same time, she says people “have to look closely at the human rights of people with dementia.”

“It’s all about doing things safely,” she says.

Ms. Fehr has taken steps to make sure her future finances are protected. She has given her husband power of attorney, which passes to her daughter should he die. Her nephew, a financial planner, was put in charge of her investments. And each of her adult children was handed information.

“They all have their own little package – just in case,” she says. “In it is written the power of attorney, where to find my will, a card with my lawyer’s name and my wishes.

“If I go into a nursing home, this is what they need to know about me.”

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