Advisors hopefully have communicated with their clients about how they should address concerns if the client is beginning to show signs of dementia, but what happens if advisors’ own cognitive decline prevents them from fulfilling their fiduciary duties?
“If you cannot provide services in a prudent manner, you have an absolute obligation to advise the client” as such, Tom Giachetti, chair of the securities practice at Stark & Stark and a columnist for Investment Advisor, told ThinkAdvisor.
Planning for dementia is uniquely difficult because, unlike planning for their eventual passing, not every advisor will be faced with diminished capacity. Although it may be unpleasant to think about, advisors know that one day they will die—hopefully not until after they’ve stopped working and successfully passed their firm on to capable successors serving happy clients. But, eventually, it will happen.
As grim as it may be, death is assured and advisors plan for it. Dementia is less certain. One in nine people 65 or older has Alzheimer’s, increasing to about a third of people 75 or older and 81% of people 75 or older, according to The Alzheimer’s Association’s 2016 annual report. However, data from the Aging, Demographics and Memory Study shows about 14% of people 71 or older may have dementia.
Although some people may develop serious memory issues, like forgetting how to do familiar tasks, not all of those people will develop Alzheimer’s or dementia, according to the Association’s report. Furthermore, some conditions like depression, thyroid problems and certain vitamin deficiencies may mimic the symptoms of dementia. A 2003 study found 9% of people with dementia-like symptoms may actually have a reversible condition, according to the Association’s annual report.
Giachetti recommended that advisors include the possibility of dementia in their business continuity and succession plans.
He’s helped his clients form agreements with advisors who have similar practices to their own that say “if I become disabled—and we define what that means—or I pass away, the estate will send out a letter that says, ‘We have an arrangement with XYZ. We recommend that you engage XYZ. We will receive a portion of the fee that you pay to XYZ, but we believe that XYZ is someone of high repute.’”
He also recommended that advisors share this information with clients at some point in their relationship rather than waiting until something happens and they need to transition clients to a new advisor.
“Some [advisors] may not care,” he said. They may say, “‘I’m dead; they have access to their accounts at Schwab or TD or Fidelity. They’ll survive.’ Others are going to say, ‘I want my clients to be taken care of and I want my family to have the benefit of the economic revenues that should flow from that.’”
Giachetti added, “This is going to be part of [Securities and Exchange Commission Chair] Mary Jo White’s initiative as to written succession plans: What happens when the advisor is unable to fulfill his or her duties by means of sickness and/or death? It’s a very difficult thing because you can’t force someone to have a succession plan.”
The SEC published its proposed rule requiring advisors to have business continuity and succession plans on July 5. The comment period ended on Tuesday.
Giachetti wasn’t confident the SEC’s initiative will be successful, but he did suggest advisors think about how they transition their client base if they’re no longer able to advise them.
Lillian Meyers, founder and president of Meyers Financial Services, a registered investment advisor (RIA) in Sonoma, California, has such a plan.
“I was aware a long time ago of the potential of me getting dementia, especially since I’m 69,” Meyers told ThinkAdvisor. “I’ve worked out a plan as to at what point I need to move on.”
Meyers has already helped clients who were dealing with dementia. “I have seen a lot of people come through here that have had it. I’ve had to protect that client [from] people abusing that person on several occasions, so I’m aware that can happen,” she said.
She has daily meetings with her assistant, who will take on her clients if she’s unable to continue providing advice. Although they don’t address dementia in every single meeting, “We’ve talked about if there’s dementia, or if my health goes downhill, what needs to happen,” Meyers said.
She also has a back-up plan with another local advisor who can take over if her successor isn’t able to.
Meyers has a list of steps for her successor to take if the need arises, as well as a health directive and living will she reviews every year.
Of course, part of protecting against dementia is staying healthy. Meyers said she sees her doctor once a year. “We try to stay on top” of it, she said. “Every year when I do my physical, I’m also dealing with my [mental] health. Am I still on track reviewing clients? Am I researching and remembering what I’m supposed to do, or am I constantly having to write things down because my memory isn’t as good as it used to be?”
She continued, “That’s really hard; that’s why I want to stay on top of it.”
Meyers added, “If there’s a point where I’m no longer doing these things and I’m not staying on top of things, I think something needs to be discussed about whether or not I need to give up more work and give it to somebody else or decide that it’s time to leave.”
She suggested advisors pay attention to their own lifestyles and routines. “We have an inclination when things aren’t quite as good as they should be. As soon as that happens, maybe it’s time to get tested.”
A more difficult and uncertain issue than planning for dementia is what implementing a plan means for the recommendations advisors have made in the last month or six months or year.
“That becomes so subjective,” Giachetti said. “If the advisor has done things that were bizarre, obviously you could say this was the result [of dementia], but as to whether or not the client can say the advisor was [correct to be] in the market, out of the market, overweight, underweight — that’s a very difficult thing to address or attack.”
The important thing for advisors, Giachetti said, is to recognize when there’s a problem and deal with it, which is clearly more difficult for advisors working in a solo practice.
“I’ve dealt with advisors, several over the years, who were the heads of their firms and didn’t really have a No. 2, and they met an unexpected death,” he said. “In those situations, the family takes over. There might be one or two people who continue, but we’ve generally got to get the firm ready for sale.”
--- Read When Clients’ Mental Capacity Diminishes: An Advisor’s Role on ThinkAdvisor.