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.”