Cognitive changes in clients raise ethical and regulatory challenges for their financial advisors, Sandra Timmermann, gerontologist and former executive director of MetLife's Mature Market Institute, said in a webinar on Wednesday.
The Retirement Income Industry Association hosted the webinar, sponsored by Merrill Lynch.
“How do you know if a client is cognitively competent or not? You may suspect something, but you’re not a clinician,” Timmermann said.
Should advisors stop making sales recommendations if they suspect a client may have cognitive issues? Should they put a hold on transactions? When should they contact a family member or third party? These questions are “thorny issues” that advisors should try to address prior to a client’s diagnosis or symptoms, Timmermann said.
The central conflict is “between promoting the autonomy of the client and at the same time promoting the good of (avoiding harm to) the client,” she said, quoting Julie Ragatz, director of the Center for Ethics at the American College.
Ideally, advisors would address issues related to cognitive decline before any symptoms appear. Early onset Alzheimer’s is rare, affecting only 5% of the 5 million Americans with the disease, according to the Alzheimer’s Association. Most people are diagnosed at age 65 or older, and two-thirds of the people with the disease are women.
Just 15% of people with Alzheimer’s are between ages 65 and 74. Most, 43%, are between 75 and 84, according to the Alzheimer’s Association.
“You really need to get your clients to think about this before the age of 65,” Timmermann said. “This is a topic that no one wants to bring up,” she acknowledged. She suggested using end-of-life discussions as a way to segue into a conversation about dementia. “It isn’t just end of life, whether you want no heroic measures at the end or do not resuscitate [orders], this is more about how you want care delivered and what would happen to you if you really got sick.”
Financial abuse is obviously another concern for advisors who have clients with cognitive impairments. Regulators have stepped up their efforts to protect elderly clients from fraud. The Securities and Exchange Commission’s investor advocate, Rick Fleming, told lawmakers in his fiscal 2015 report to Congress that financial firms should be able to “pause disbursements of funds, contrary to the explicit instructions of a customer,” and that such a scenario should “trigger an obligation to report the suspicious activity” to adult protective services, Melanie Waddell reported in early January.
Both the Financial Industry Regulatory Authority and the North American Securities Administrators Association issued proposed rules last fall to place a temporary hold on disbursement of funds or securities from accounts in case of potential fraud, Waddell reported.
Perpetrators of financial abuse can be strangers or friends and family, Timmermann said. “When you think about bringing a family member in [to discuss potential abuse], that family member may be the one who’s the perpetrator of financial abuse,” she warned.
“The ultimate protection is reporting a case to adult protective services,” she said. Advisors can make anonymous reports to adult protective services.
The Elder Justice Act was passed as part of the Affordable Care Act to put money toward protecting vulnerable adults from financial abuse, Timmermann said. “It hasn’t been completely funded” yet, she said, “but it is more and more on the radar of not only family members but the regulatory environment in D.C.”
So what should advisors do? Start by getting a power of attorney and an emergency contact on file. That might not be a family member, Timmermann said. However, advisors may consider having them bring a family member to a meeting if they start to become concerned.
Document meetings, she suggested, and consider having clients sign those notes.
If advisors have strong concerns about a particular client, they may need to bring them to their compliance department to see about the next step to take.
The Brain and Dementia
The hippocampus is key for memory and the amygdala is key for emotion, Timmermann said. “Both of those are affected by Alzheimer’s,” she said.
The hippocampus transfers memories to the cerebral cortex, Timmermann said. When the hippocampus is damaged by dementia and Alzheimer’s, it’s no longer able to transfer new memories effectively. “The immediate memories are forgotten, and that’s why you see people repeating themselves over and over again, but they can bring up long-term memories which were stored more permanently in the cortex.”
There are two types of intelligence, Timmermann said: fluid and crystallized. Fluid intelligence is the capacity to process new information, and includes verbal learning, such as vocabulary and arthimetic, and performance learning, like puzzles.
Crystalized intelligence is based on skills people learn throughout their lives, Timmermann said. “It’s past experience and applying that past experience to what we do every day.”
In people with healthy brains, fluid intelligence increases until age 40 and begins to decline after age 60, with more pronounced declines after age 70. Crystalized intelligence remains stable or actually improves into age 70, and varies between individuals.
There are different types of dementia, Timmermann said. Alzheimer’s is the most prevalent; 60% of dementia cases are Alzheimer’s. About 15% of cases are Lewy body dementia, and 5% are vascular, resulting from a stroke or blood vessel blockage. Timmerman said 10% of cases are mixed.
Lewy bodies are protein deposits in the brain, Timmermann said. “People who have Lewy bodies often have some vision problems, things that you might not associate with Alzheimer’s.” Other symptoms of Lewy body dementia include slowness and gait imbalance, according to the Alzheimer’s Association.
Early warning signs of dementia include difficulty finding the right words or completing familiar tasks; changes in mood or personality; confusion with time and place; apathy or withdrawal from activities; failing sense of direction; repetition; and struggles to adapt.
Some of those are just signs of getting older, though, so how do you determine when a client might need more help? Forgetting which day it is might be a sign of someone getting older, while losing track of the season could be a sign of bigger trouble. Not being able to remember the word right on the tip of your tongue is normal; when it makes it difficult to carry on a conversation, it’s a cause for concern.
Depression can also cause symptoms that are similar to dementia, like apathy or lack of focus, Timmermann said.
“The decline is key,” Timmermann said. If a client who has always been punctual starts missing appointments, that’s a bigger red flag than someone who has always been forgetful or late to meetings.
What Does the Research Say?
Age alone is not a key factor in determining a client’s cognitive abilities, according to a study by the Center for Brain Health at the University of Texas. It found no decline in decision-making across age groups in 50- to 79-year-olds.
“There is some evidence that you have to use it or lose it,” Timmermann said. Mental activity may help delay the onset of Alzheimer’s, she said.
Some neurologists say neurons continue to grow when you keep your brain stimulated, she said.
Timmermann referred to research from Paul Nussbaum that found individuals can keep their brain healthy through physical exercise, particularly cardiovascular exercise because it keeps blood flowing to the brain; nutrition and a healthy diet; mental and intellectual stimulation, especially new challenges; socialization and avoiding isolation; and spirituality and reflection.
“Having a purpose in life is part of it, but also taking time to meditate, to reflect, that’s something that really balances out what we have to do in our work life. As we age, that probably makes a lot of sense as we look back on our lives,” Timmermann said.
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