It isn't an easy conversation to have, but financial advisers need to talk to their clients about Alzheimer's disease and other forms of dementia, and the potential impact those afflictions can have on their financial circumstances.
“The first conversation is difficult, but after you have it, you can actually develop stickier relationships with your clients,” said Brian Parker, managing director of EP Wealth Advisors Inc. “It gives you a chance to talk about future risks.”
The risks aren't only to the clients. Advisers who provide recommendations and financial advice to clients suffering from some form of diminished mental capacity are vulnerable to lawsuits and enforcement actions that can damage their practices.
“You can't meet your fiduciary obligations if the client's behavior suggests they have reduced capacity,” said Hollie Mason, an associate counsel for TD Ameritrade Inc. “The bottom line is, if a client hasn't provided someone to talk to that has the power to act on their behalf, an adviser may have to determine not to continue making investment recommendations for the client.”
According to the Alzheimer's Association, 5.4 million Americans have the disease, and about 50% of Americans will develop dementia in their lifetime. One in eight people over 65 and 43% of Americans over 85 currently suffer from it.
With the baby boomers now entering retirement, the numbers will grow dramatically.
The disease is a life-changing event that will necessarily affect asset allocation decisions for all but the wealthiest clients.
For advisers, the possibility that a client has dementia raises two major issues.
First is the cost.
According to Mr. Parker, the estimated cost of care for a person with Alzheimer's over a typical six- to eight-year course of the disease can be between $600,000 and $800,000.
The second issue is legal risk.
Ms. Mason suggests that advisers proceed with caution when it comes to clients who may have dementia.
“When you suspect a capacity issue, it's not the time to get them to sign up for an estate plan,” she said. Nor is it the time to recommend any new investments or strategies.
“When you start to have concerns, go to Plan B and manage your risk,” Ms. Mason said.
The first step should be to bring the client in to have a conversation with a branch manager, she said.
A person isn't deemed incapacitated until a doctor declares it.
If the concerns are borne out, the adviser needs to raise the issue immediately with any family members and determine if the client has given power of attorney to anyone and whether it is limited (only effective when the person is not incapacitated) or durable (effective through incapacity). The documents should be drafted by an attorney.
From the minute that advisers have concerns about a client, they should document them. They also should document meetings, conversations or other exchanges with relatives and others about the situation.
“Document, document, document,” Mr. Parker said. “The potential legal implications are scary.”
The documentation won't protect advisers from lawsuits down the road if a family member or other party is determined to sue, but it will likely help in a legal battle.
The truth is, if an adviser hasn't taken any steps to plan for the possibility of a client's developing Alzheimer's, they are at risk.
“If you're seeing signs and haven't done anything about it yet, you're too late,” Mr. Parker said. “You have to be proactive.”
aosterland@investmentnews.com
