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.