Long advisory relationships are often punctuated by health challenges as clients age. Helping your clients and their families cope with dementia — one of the more insidious of these challenges — is a necessary skill. Persons affected by dementia may give away money to strangers or charities, overpay for services, become victims of financial fraud, or even change wills and trusts while under the influence of outsiders. The advisor is in a unique position to defend the estate against such actions.
The signs of dementia can be subtle and do not necessarily include mere forgetfulness. We have experienced the following with clients in the past, all of which later proved to be signposts on the way to dementia:
- The client changes the topic in the middle of a meeting to something unrelated.
- The client exhibits an uncharacteristically quick temper.
- Despite using the same restaurant for every meeting, one day the client is late because she “took a wrong turn.”
- Intense worry over ordinary things; worry even after being reassured.
- Uncertainty about using her login to our site, accessing statements, etc., after previously being successful at the task.
- Increasingly frequent calls to ask us the same questions repeatedly.
Meeting the challenge of a client’s deteriorating mental capacity has two dimensions. The first is internal: How and whether your firm will document, receive permission to cope with, and accept responsibility for the situation. The second is client facing: Helping your clients and their loved ones prepare for the progression of this disease.
Preparing your firm for aging clients can bring these issues top of mind, which helps you recognize trouble when it arrives:
- Your privacy statement. Originally, we wrote our privacy statement with an ironclad guarantee of confidentiality. We wouldn’t speak to anyone about a client’s affairs without written permission to do so from the client. Later, we issued a new privacy statement (you must supply this annually anyway, so an update is simple) indicating that if we suspected diminished mental capacity, we would contact a person we knew that the client was close to, or a professional doing work for the client. The new language was a result of our experience with a client who slid far enough mentally that he was unable to issue us permission to speak to another party about his affairs. We essentially violated our own privacy statement. The solution was to change the language.
- Your custodian’s “trusted contact” form. We utilize Charles Schwab & Co. as our custodian. Schwab created a “trusted contact” option for clients, allowing them to name a person who could obtain basic details about a client’s situation from the custodian. This does not stand in for a power of attorney, but it’s better than nothing. We urge clients to update their account documents with Schwab to include this form.
- Intake worksheet. Our current intake process includes a worksheet asking for the client’s accountant, attorney and family contacts with a brief outline of how their will or trust works. We make it clear that this form dovetails with our privacy statement and that we might be calling a person they list someday.
- Policy adjustment. Our policies and procedures manual now includes a clause for letting others in the firm know if an employee has an interaction with a client that seems “off.” We are a small firm, lucky enough to be very familiar with all of our clients, so it is relatively easy to identify odd behavior. We document these instances and then determine together whether we need to notify a trusted contact.
- Income testing. If you are managing money for the client, you will likely need cash to meet higher expenses for care. Our practice is largely money management; as soon as we understand that a client may be moving toward a higher level of expenses, we think about what can be sold, and we begin to hold back on new purchases. We test income generation against the likely budget and communicate how this will affect the longevity of the asset base, and how to plan beyond that, if necessary. Ideally, you will have positioned for this as clients move into their late 70s and 80s.
As an example, we worked for a couple with slender investable resources who had purchased an Oregon coast beach lot back in the 1970s, when property at the coast cost almost nothing. Despite our aging clients’ desire to keep the lot for “family,” we were able to convince them that once its value reached several hundred thousand dollars, it might be more important to liquidate that asset before they required care.
This would, in effect release the couple’s sons and daughters from potential liability for their care. That perspective on the issue encouraged the clients to discuss the sale with their children, who weren’t at all inclined to use the lot — ever!
Client and Family Engagement
Discuss with your client and if possible other family members these steps:
- Identify passwords, accounts and services that the affected person uses frequently. These could include banks, credit cards, brokerage accounts, and even subscriptions and social media. Maintain this list where it can be retrieved by the family if necessary.
- Make sure family members know your client’s lawyer, accountant, and other providers, so contact can be initiated if necessary.
- In one extreme situation, we networked our way to the affected client’s doctor to ask for help; that took days when it shouldn’t have. Some member of your client’s family should be on speaking terms with your client’s doctor, even if you are not!
- Be prepared to find professional care. Resources can include your family doctor, estate planning lawyer or online searches. We like this site.
- The Big One: the power of attorney. Ideally before the first signs of mental incapacity, the advisor already knows who holds power of attorney. If no one does, suggest a trip to the lawyer. If the client wants to avoid the cost of a lawyer, most custodians offer a power of attorney form. Be clear about what powers the POA actually grants and which types of accounts it covers and help your client understand these provisions. Maybe one in five POA’s “work” the way the client expects them to work. Most custodian forms cannot accommodate sophisticated provisions. Remember that if you install a POA on a joint account at a custodian, and one of the accountholders dies, the POA may need to be renewed for the remaining client. The existence of a POA is an opportunity to educate your client and generate trust with the family.
As clients live longer, advisors will be facing these challenges more frequently. It doesn’t pay to be tentative about the matter; on the contrary, preparation will be appreciated.