Close Close

Life Health > Long-Term Care Planning

How to Prevent Legal, Ethical Problems When a Client Gets Alzheimer’s

Your article was successfully shared with the contacts you provided.

The statistics are shocking: One in nine Americans age 65 or older suffers from dementia. Up to 80% of all cases of dementia are caused by Alzheimer’s disease, and 5.4 million people in the U.S. are afflicted by it, according to the Alzheimer’s Association. Alzheimer’s is in fact the nation’s biggest epidemic, Harvard Medical School affirms.

One of the earliest signs of cognitive impairment is a decline in financial skills. It is therefore critical for advisors to learn how to work with clients in the early stages of dementia to preclude legal and ethical problems. That’s the message from Dave Paulsen, executive vice president and chief distribution officer of Transamerica, in an interview with ThinkAdvisor.

To help both FAs and their clients, Baltimore-based Transamerica collaborated with the Massachusetts Institute of Technology’s MIT AgeLab to create “The Advisor’s Guide to Financial Planning in the Shadow of Dementia,” a framework for discussing finances and cognitive decline.

There is no way to prevent or cure Alzheimer’s. And while the risk and rate at which Americans are being diagnosed with the disease is dropping, because of the huge demographic of aging baby boomers the number of people with it is projected to increase exponentially, according to the Commerce Department. Dartmouth Institute warns of “a tsunami of Alzheimer’s.”

Advocate organization Us Against Alzheimer’s maintains that the disease is the most expensive in America — “the financial sinkhole of the 21st century.”

ThinkAdvisor recently interviewed Paulsen, whose background is in variable annuity sales and distribution, about what financial advisors need to know when working with the growing population of investors who are showing signs of cognitive impairment, some likely to be their current clients. Here are excerpts from our conversation: 

Is buying an annuity appropriate for someone in the mild first stage of Alzheimer’s?

I can’t make a blanket statement, but in some cases, yes. For people with dementia or Alzheimer’s, it’s very important that their third-party caregiver understand that the annuity solution provides guaranteed income. And there’s also upside associated with variable annuities.

But variable annuities can be complicated and hard to understand even for those with normal cognition.

I wouldn’t expect someone with cognitive decline to understand all the moving parts, but they have to understand the value that it brings: guaranteed income.

What modifications in approach should the financial advisor make in talking to a client with diminished cognitive capacity?

They may need to change the way they communicate by not only talking to them but by showing illustrations and, in general, speaking a little more slowly. They should ask closed-end questions, be patient and show that they understand.

Should the advisor address that she or he has been diagnosed with Alzheimer’s or not bring it up?

Once a person [acknowledges] that they have dementia or are in the early stages of Alzheimer’s, each one will have a different level of comfort as to how they want to share that information with their financial advisor. In any case, in no way should the advisor try to offer medical advice.

What should the FA do when they first notice signs of cognitive impairment in a client?

Make a recommendation that they see a professional to be sure they get the proper health care supervision.

Should the advisor notify their firm too?

Yes. They should also work with the back office and their broker-dealer, if they’re a registered representative, to [clarify] the policies they have as an organization when it comes to dealing with people with cognitive decline.

Is it necessary that a third-party advocate attend advisor meetings with the client?

Yes. It’s very important to make sure that the client is willing to have conversations with the advocate in the same room. Adding a family member or a caregiver — someone who may have power of attorney — not only helps protect the customer but also the advisor by making sure everyone understands what’s taking place.

In such a meeting, there might be a tendency for the FA to speak past the client and to the advocate instead. Your thoughts?

Advisors are putting themselves in a poor position if they do that. The client is still their client, and they should continue to treat them as such. The third-party advocate is simply there to make sure that the proper decision-making takes place.

All of that should be put in writing, I assume.

Yes. The advisor needs to properly document everything to have a record of why specific decisions have been made. They should write a summary of what was discussed in every meeting. That’s critical when working with people with dementia.

What else should be memorialized and kept by the advisor?

Copies of documents from the client’s network of attorneys, care providers or trustees that reflect power of attorney that has been given. Your firm and MIT AgeLab developed a financial planning framework to use in working with affected clients. What’s most important?

The advisor needs to get a full view of the client’s financial make-up. Sometimes customers have multiple financial advisors or have made investments on their own. So you need to know where all the assets are, including real estate and insurance products. Often people have long-term care riders associated with insurance products but might not remember that. Therefore, the advisor needs to ask a lot of questions to properly protect these individuals and utilize investments in the most tax-efficient manner. That can mean selling assets appropriately to minimize taxes.

Why are the client’s “intentions” concerning life insurance important?

The advisor needs to understand the intent of the life insurance that’s in place and make sure the beneficiaries are designated appropriately. Some people fund insurance and then later take tax-free loans from it to supplement their income. Others use it as a legacy to their heirs. Some use it to make sure their spouse is taken care of or that it covers all their debts after they’ve passed away.

In light of the DOL fiduciary standard rule due to be implemented in April, what’s the future of annuities?

Variable annuities are far simpler in design than they were 10 or 15 years ago. And now the industry is starting to look at a fee-based variable annuity that’s low in cost and puts the advisor on the same side of the table as the customer. It’s not a commission-based product, so there’s no conflict of interest. It’s charging a fee for managing assets.

How can FAs help clients with dementia when it comes to routine banking, bill-paying and tracking expenses?

The normal tasks that we take for granted every day, people with dementia soon forget how to accomplish. So the advisor can create a schedule of when bills are due and help identify which source of income will be used to pay each one — whether it’s guaranteed or discretionary income.

How else can advisors participate?

They can help the third-party advocate set up payments on autopay so bills aren’t forgotten and left unpaid. This is making sure the client doesn’t have to wake up every day trying to remember bills that need to be paid and when. The advocate also should make sure that medications are picked up or delivered and are taken as prescribed.

Ultimately, the Alzheimer’s patient can no longer be cared for at home adequately or safely. Does the FA discuss with the advocate admittance to a long-term care facility?

That’s one of the most difficult conversations. Nobody wants to see a loved one going into a facility because quite often that has a negative connotation. But this is a conversation that has to take place, including the level of care that’s needed, the cost and how to pay for it.

How costly is it?

It can be astronomically expensive and in some cases, rather quickly use up someone’s entire life savings and all their assets. A long-term stay in a facility for someone with Alzheimer’s could be up to 20 or 30 years. Their body continues to work, but their mind isn’t working the way they need it to.

Medicare doesn’t cover long-term care. So should advisors recommend long-term care insurance?

I would suggest looking into that. But it should be part of the recommendation in a financial plan that the advisor makes when the individual is fully healthy rather than after there’s been a decline.

In multiple ways, it can be intensely difficult on the family member who’s responsible for caring for the Alzheimer’s patient.

Yes. Dementia and Alzheimer’s are not only devastating for the patient but they’re extremely hard on the family caregiver physically and mentally. The pressure that’s put on them can destroy their lives. Many baby boomers are going through this now. Very often they’re stuck in a sandwich situation with kids of their own that they’re taking care of too. All this may cause them significant financial hardship.

And that’s where the financial advisor comes in once again?

Yes. It’s important for the advisor to not only think about their client but what they can do to help the caregiver from a financial aspect.

— Related on ThinkAdvisor:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.