The risks of not talking about cognitive decline

Talking about Alzheimer’s, dementia and cognitive decline can be an uncomfortable conversation to have with clients, but avoiding it may be far worse.

And failing to incorporate that into financial planning not only puts undue risk on clients, but it could also lead to several problems for advisers, according to panelists at a recent American College of Financial Services webcast.

“There are a lot of things that advisers should be doing, starting as early as when clients are in their 50s,” said Chris Heye, CEO and founder of Whealthcare. “The first step is to try to have these conversations early on. Really importantly, try to get to know other family members, because you’re probably going to need them later.”

Covid-19 has placed more attention on long-term care and health care in old age, he noted.

“It’s probably easier than you think. You don’t need to be a doctor … You don’t need to be a psychiatrist,” Heye said. “You just need to be a human being that can show a little empathy.”

Despite the difficulty of the conversation, clients are most often receptive to planning for health problems later in life, including diminished mental capacity, he noted.

Advisers who don’t bring up the topic and help clients plan for it face several big risks, Heye noted in a recent paper he co-authored. For example, the primary account holder might simply leave.

“Financial exploitation and/or impulsive decision-making left unchecked can lead directly to substantial account outflows and/or significant declines in overall portfolio value,” the paper read. “The perceived inability to adequately address diminished capacity issues can further result in declining client satisfaction and loyalty.”

Further, advisers can miss out on changes to consolidate held-away assets, and they also risk money going out the door when it is inherited. Eighty-seven percent of heirs do not retain their parents’ advisers, according to the paper. Advisers who can show heirs that they are good stewards of their parents’ assets, by planning for cognitive decline, might be more likely to win their business.

Further, advisers who fail to help their clients who are experiencing cognitive decline face regulatory and reputational risks, the paper noted.

What to do ahead of time

Having an advance directive, living will and power of attorney are critical, said Lesley Mehalick, supervising partner of trusts and estates at McAndrews Law Offices.

“It’s just essential that every adult client have a financial and a medical power of attorney – name an agent who can make decisions for you if you’re unable to,” Mehalick said. “They still retain full ability to make decisions themselves. They can revoke the power of attorney if it’s no longer appropriate. They can change their agent. So it’s not something that you should be scared of. It’s a preventative document and it is so very important.”

WHAT TO DO AND WHEN

“Ethically, attorneys can and should voluntarily bring protective action whenever they reasonably believe that the client has diminished capacity, that the client is at risk of substantial physical or financial harm and that the client cannot act in his own best interest,” Mehalick said.

States have different laws about reporting cognitive decline, but appropriate protective action can range from simply letting another family member know about a client’s condition to reporting suspected elder abuse to law enforcement, Mehalick noted.

“The law does presume that every adult does have capacity unless and until a court makes a formal and legal determination that that person is incapacitated to the extent that they can no longer make responsible decisions for their own health, welfare, safety and finances,” Mehalick said. “And that is regardless of the person’s actual functioning.”

To show the ability to make a will for oneself, for example, a person must have a good general sense of the nature and extent of their property and who their heirs are, she noted. But that ability can be fluid, changing from day to day or by time of day, she said.

“I’m important to ensure that we’re making every effort we can to enhance the client’s capacity,” she said. That could include meeting clients at their homes, at times when they are functioning best.

“A lot of clients with early dementia might be most lucid in the morning. They might be much more comfortable at their own home, where they’re in their own setting,” she said.

Other things that can help are using larger fonts on documents and communicating slowly and carefully, she said. In some cases, it can be beneficial to have two witnesses available for document signings, including a notary.

If a client is suspected of showing less mental capacity, they might consent to having a doctor evaluate them, she noted. The warning signs can include cognitive or behavioral changes and showing poor financial literacy, Heye said.

“It’s a really big issue,” he said. “As most of us know, the population is aging … By the time when get to [2035] it is expected that there will be more people over the age of 65 in the U.S. than there are under 18, for the first time ever.”