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Advising Boomers Who Are Representing Their Parents

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Advisors detail a pattern they say is developing

What should a financial advisor do if a boomer who comes in for advice turns out not to be the actual customer but rather the intermediary for the real customer–the boomer’s own parents?

That is happening more often today than in years past, says Carolyn Schultz, a long term care insurance specialist at McCaskill Financial Group, Tulsa, Okla., and a MassMutual agent.

In this year alone, for instance, Schultz already has dealt with boomers on 3 or 4 such cases where the parent was the ultimate customer. Previously, these cases were extremely rare.

Schultz is among several sources interviewed on why this trend is occurring and how advisors might best meet the need.

Harvey Kotler, principal at Kotler, Turk & Associates, Beachwood, Ohio, sees the trend, too. “It’s happening more often,” he says, particularly when boomers start discussing financial obligations they will face if a parent needs LTC. So, too, with other experts.

Why is the trend becoming more noticeable? Sometimes, boomers come in after the advisor has presented an employer-endorsed voluntary LTC insurance plan at the boomer’s workplace, says Schultz. If the LTC plan allows parents of employees to apply, she says, boomer employees will often ask for more information. That can lead to the boomer-as-conduit interview.

Other times, these situations result from previous contacts the advisor has had with the boomer–from community activities or from prior financial dealings, say sources.

Kotler has noticed it emerging in the midst of a capital needs analysis with boomers. “We routinely ask, ‘who potentially is dependent on you?’” he says of those sessions. Often, the boomer’s answer includes not just spouse and family but also the boomer’s parents.

The boomer may already have power of attorney for a parent and the living will, Kotler points out. So, the boomer is already aware that he or she will someday be making a lot of life decisions for the parent. But when the potential dependency question comes up, the boomer starts to see that he or she faces potential economic responsibilities for the parent, too, he says.

Example: The parents could develop major health care expenses that exhaust their financial resources. Most of Kotler’s clients would rather plan for that eventuality than rely on Medicaid, so that leads them to seek financial advice on behalf of the parent.

[Note: Schultz and Kotler have responded to that scenario in similar ways. Schultz has sold an LTC policy on a mother, with the 3 boomer children sharing the premium; a return-of-premium rider is included, so the children will get the premium back when the mother dies, even if she was on claim. Meanwhile, Kotler will sell LTC on a parent and arrange it so that the boomer pays the premium if the parent cannot or the parent pays, if able to do so.]

When dealing with boomers who are representing their parents, Schultz uses an approach favored by many advisors. She speaks first with the boomer and then with the parent. In a recent case, there were 3 visits in all–one with a boomer, one with a boomer and parent, and one with the family at policy delivery.

This planning is a family issue, she stresses, so she makes every effort to include the whole family, not just the boomer. Everyone gets to see that a plan is in place, and how it will be paid for. That helps families work together, she says, because there is less worry and anger.

“The parents have to be part of the decision-making process,” reinforces Kotler. “It would be disrespectful not to include them, and most parents remain independent in their thinking where economic concerns are involved.”

The situation sometimes can be dicey, though, cautions Paul Morris, senior vice president-agency department at New York Life Insurance Company, New York. That’s because advisors may encounter either a “greed factor” or a “fear factor.”

The greed factor shows up in boomers who do not want to spend the parent’s money for the parent’s care or financial income needs, he says. Such boomers might reason that, “If I do this for Dad or buy this policy for Mom, then I’ll be out of something in my inheritance.”

The greed factor is definitely “out there” among boomers, says Morris.

But the fear factor is probably what most financial advisors encounter, he says. This is typically triggered when a parent’s health starts to fail. The boomer begins to worry that the parent will outlive his or her income, or that the parents are not living as well as desired, he says.

Often, when the fear factor is strong, boomers will ask the advisor, “‘is there something you can do to help my [mother or father]?” Morris says. They are looking at their parents’ assets and at the interest rate environment, “and they are wondering if there is any way to stretch out what is left for the 20 or more years the parent could live.”

And, says Morris, the boomers are wondering, “who is going to help my parent if this is not done?”

Most children will provide this help, Morris says, “but some can’t because they do not have the physical or monetary means to do so.” They and their parents will be thinking about what to do: Sell the house? Move (the parent) in with the (boomer) family? “Who knows what they will have to do?”

Income annuities often can be part of the solution, Morris says. But many boomers do not know about these products, he says, “and many financial institutions never give out that advice, though this is changing.”

When a boomer does not know what to do, he says, “a well-placed call to a good advisor pays huge dividends.”

From a legal perspective, “conflict of interest” is the No. 1 issue for advisors to sort out when dealing with boomers who are representing parents, says Douglas I. Friedman, a partner with the Birmingham, Ala., law firm of Friedman & Downey, P.C.

The advisor will need to identify the main interest of the boomer and the main interest of the parent, explains Friedman, who provides legal counsel to financial advisors as part of his practice.

Often, boomer and parent interests are at odds, he continues. For instance, many boomers will focus on preserving as much inheritance as possible, while many parents will be concerned about preserving their money as long as they live.

Problems do crop up because of these conflicting interests, Friedman says. For example, in his own practice, a boomer once said that “Dad wants to do Medicaid planning.” But, once the father was alone, he stated that he definitely did not want to do Medicaid planning.

Friedman thinks advisors should “use common sense” in dealing with these and other situations involving boomers as conduits. His suggestions include:

==Don’t let an adult child come in and say, ‘this is my father’s money and he says it’s OK to do this.’ Check it out and get documentation.

==If the boomer has a valid power of attorney, get a copy of it and submit it to the insurance company compliance department (which reviews its validity).

==If the boomer has no power of attorney, see the client yourself and ask the insurance company what to do in this situation.

==Check out whether the parent is competent. If not, you probably won’t want to do an insurance application and probably the insurance company would not want that business.

==If a boomer has legal guardianship of the parent, court approval is typically needed for any investments made.

==Remember that the parents will need more flexibility in financial arrangements, not less, because they are old and have fewer options.

Finally, suggests Friedman, “understand the impact of the financial decision on the parent’s situation. Do a fact finder, for instance, to learn what else is going on. If you don’t know what to do with all the information, take it to an expert at the insurance company or elsewhere for help.”

A well-placed call to a good advisor pays huge dividends

Product Pointers

…when working with boomers who are representing their parents in financial dealings.

A return-of-premium rider on an LTC policy will be of strong interest to boomers who want to pay the LTC premium of their parent.

==Carolyn Schultz, McCaskill Financial Group, Tulsa, Okla.

Consider selling life insurance on the boomer to cover the economic responsibility the boomer bears related to care of the parent. Make the parents the beneficiaries.

==Harvey Kotler, Kotler, Turk & Associates, Beachwood, Ohio

Many boomers and their parents experience great relief when they learn how immediate annuities can guarantee an income stream for a lifetime.

==Paul Morris, New York Life, New York City

Assess the entire picture. For instance, parents in their late 70s+ may be too old or infirm for life insurance, and suitability issues may arise with certain types of annuities.

==Douglas I. Friedman, Friedman & Downing LLC, Birmingham, Ala.


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