Your clients are conditioned to expect you, their financial advisor, to be able to handle financial issues that may befall them. So it might be counterintuitive to suggest to them that they might want to appoint someone else to backstop them on their financial affairs.
But there are very good reasons that a client might want to appoint a financial power of attorney. Not only can it give the client peace of mind when entering their later years, but it might actually help you do your job more easily as well.
A financial power of attorney offers several advantages for both you and your client. If the client becomes unable to make decisions for himself or herself, someone else gains access to their finances and has the authority to make decisions on the client’s behalf. Some of the most important points to keep in mind:
Dementia is very common. It is estimated that one in eight American families will be touched by Alzheimer’s disease. Any form of cognitive impairment can destroy a client’s ability to make financial decisions. By naming a financial power of attorney well in advance of when one is needed, the advisor can help the client be way out in front of the problem.
Financial advisors don’t have the legal authority to intervene on behalf of their clients unless they have been expressly given such authority ahead of time. This remains the case no matter how cognitively impaired the client might be.
Privacy issues prevent financial advisors from intervening if they notice a client starting to show diminished intellectual capacity. In fact, they’re not even allowed to contact a family member about those warning signs unless they have the client’s prior consent. So the time to broach the topic of appointing someone is well before such a person becomes necessary.
It’s not difficult or expensive. A legally valid financial power of attorney can be established by filling out a simple form that can be found on the Internet. It’s generally no more than a few pages long. These documents must be notarized, and in some states, the signing must also be officially witnessed. Some banks and brokerage companies have created their own power of attorney forms, which may not be strictly necessary but can make dealing with those institutions a lot easier. It can keep your client out of court. If the client hasn’t named someone to take care of his or her financial affairs and does become incapacitated, the family could be required to go through court proceedings to appoint a guardian or conservator.
It doesn’t have to come into play until needed. It’s easy for the client to retain full control over all financial decisions until such time as they become incapacitated. The definitions for financial power of attorney are the same as their medical counterparts: A “springing” power of attorney doesn’t come into effect until it is needed, while a “durable” power of attorney stays in effect until the time of the client’s death.
The financial power of attorney can be a different person from the medical power of attorney. The financial POA and the medical POA can be assigned to two different people. Perhaps the client has one caring, close family member that he or she trusts to make good medical decisions, and one brilliantly analytic family member he or she trusts for financial decisions.
Or perhaps the client simply feels that it’s too much to ask of one person to take on all that responsibility. Either way, it’s easy enough to divide up the work, but each person should be aware of who is handling the other side of the equation. They both might need to be involved in, for example, long term care decisions.
They can handle the smaller stuff. This is where you as a financial advisor might want the client to enlist a financial power of attorney. There are many trivial financial transactions this person can handle, such as day to day personal expenses, simple bank transactions, mortgage and insurance payments, etc.
And finally, it can be canceled at any time. The client can cancel the financial power of attorney at any time by simply tearing up the agreement. There is literally nothing to lose.
See also these articles by Tom Nawrocki: