By Cyndy Hubler, Compliance Consultant, 1st Global
Every year, countless Americans with dementia fall victim to financial fraud and abuse. They face an increased risk of being taken advantage of due to their diminished ability to detect willful deceit and understand finances. Also, an increasing fear of poverty in the face of advancing age often causes people with dementia to fall prey to get-rich-quick schemes.
Alzheimer's, a type of dementia that causes problems with memory, thinking and behavior, accounts for 50 to 80 percent of dementia cases. Symptoms usually develop slowly and worsen over time, becoming severe enough to interfere with daily tasks. More than 5 million Americans have been diagnosed with Alzheimer’s and that figure is estimated to grow at the rate of more than 350,000 new cases each year with roughly half of Americans expected to develop dementia in their lifetime.
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. This disease can be a life-changing event that will affect asset allocation decisions for all but the wealthiest of clients.
In its early stages, memory loss is mild, but in late-stage Alzheimer's, individuals lose the ability to carry on a conversation and respond to their environment. People with Alzheimer's live an average of eight years after symptoms become noticeable, but survival can range from four to 20 years, depending on the person’s age and health conditions.
“The fact that dementia is a progressive condition has particular implications when it comes to managing money. There is often a slow deterioration in the person’s ability to carry out tasks such as paying bills, dealing with paperwork, or making decisions about property and investment,” states the 2011 Alzheimer’s Society report, “Short Changed: Protecting People with Dementia from Financial Abuse.”
People with dementia display several changes in behavior and diminished capacity that include:
- Difficulty in judging risk
- Difficulty in understanding complex strategies
- Preference for solitary living environments
- Reliance on professionals and family/friends for life necessities
- Reduced ability to detect deceit
- Declining ability to remember and understand financial information
- Declining ability to process visual information.
Cognitive decline and dementia make it increasingly difficult for older Americans to manage their own finances. Factor in the vast variety of banking and financial accounting technologies that require remembering passwords, using complicated security codes and PINs to access bank and brokerage accounts, and you realize that identifying clients with dementia/Alzheimer’s disease is more important than ever before.
But the risks aren't only to clients. Financial professionals who provide recommendations and financial advice to clients suffering from diminished mental capacity are vulnerable to lawsuits and enforcement actions that can destroy their practices.
The Importance of Planning Ahead
The most beneficial advice and guidance you can give to your clients is to plan ahead. Make sure your clients have the appropriate, up-to-date estate, legal, financial and healthcare documents on file. Many legal documents must be signed by an individual while he has the mental capacity to make decisions while understanding the implications.
Therefore, when someone is diagnosed with dementia, amending existing legal arrangements and setting up new arrangements can become complicated. It is important to
remember that a person is not deemed incapacitated until a doctor declares it. Revisions or drafts of new legal arrangements should be written as soon as possible after diagnosis so that the person still has the mental capacity to make sound decisions and can make his wishes known. Wishes of a non-legal nature, such as preferred living situation, can be described at the same time.
Initiate the conversation with clients early about planning for the financial implications of a disease like Alzheimer’s, and if appropriate, discuss long-term care insurance with clients. Focus your clients on developing a plan for the future. It is important to understand a client’s wishes ahead of time, such as where he will live and how he will pay for it.
You should ask as part of your standard practice, either at account opening or at a later point, whether the customer has executed a durable power of attorney. Also, ask whether the client would like to designate an emergency contact whom the firm could contact if it could not reach the client or had concerns about his or her whereabouts or health. The client may also agree to allow you to notify the emergency contact if there is a concern related to diminished mental capacity or financial abuse by a third party. (You should clearly disclose to the client the conditions under which the information would be used, and let the client know that he has the right to withdraw consent at any time.)
Seek to involve family in financial discussions before any issues develop, but keep in mind that the decision to involve children ultimately rests with the client. If possible, get to know your clients’ children and stay in touch with them. Let them know that you are ready to assist should any issues come up with their parents. This is particularly important when clients’ children live out of state. If appropriate, ask the client if he would like to invite a friend or family member to accompany him to appointments at the firm.
What To Look For
Asking relatives the right questions can help you detect and confirm signs that your client has dementia. Topics to broach with them should include: forgetting the names of people who are close to them; forgetting recent experiences; being unable to find important things; exhibiting unpredictable mood changes and no longer showing interest in outside activities. These are all common signs of dementia and not normal aging.
The difficulty of discussing financial issues is one of the most common problems raised by professionals working with people with dementia. Finances are often seen as a private matter, and many are reluctant to admit they are having difficulties or have been victims of a scam. Without these discussions, however, practitioners find it hard to talk with families. The most common response to a suggested mental issue is what is called “denial delay,” in which the client denies there is an issue and thereby delays obtaining a diagnosis that would provide an opportunity for the advisor to work with family members and initiate proactive planning that will provide the means for ongoing counsel.
If you’re “gun shy” about discussing, in-depth, a client’s mental well-being with him or his family, you may find it helpful to refer the family to the Alzheimer’s Association website and suggest they utilize the Alzheimer’s Navigator tool. The questionnaire and series of surveys can be completed by the client or his or her family member. It produces a detailed report of recommended actions and guides, including the effective address of the client/patient’s financial needs and necessary actions and directives. It also sets up a common contact point for important “team members” to communicate and work together on important issues and needs.
You may consider providing the client or their advocate with a copy of the FPA/AARP Publication, “A Financial Professional’s Guide to Working With Older Clients” as an aid in your discussion or for the client or their advocate to review on their own. A person is not considered to have Alzheimer’s or dementia until they are diagnosed by a physician, so a formal diagnosis is critical.
If You See Something, Say Something
If you suspect that a client may be displaying diminished capacity, encourage him to see a doctor. If your concerns are such that you believe your client may be in need of medical analysis and family support, address the issue immediately with family members. Determine whether 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).
It can be incredibly important to help your client keep in mind that when he or she works proactively with the potential for a diagnosis of Alzheimer's, it allows them to take part in key decisions about their present and future care, define their living options and address their financial and legal matters while building the care team and social support network they will need as the disease progresses. Being proactive doesn’t just make good monetary sense — it can be the definitive act that establishes their quality of life over time.
The point is simple: If you see signs of dementia or Alzheimer’s, be proactive in reaching out to both your client and his/her family. While it may be a “sticky” situation at first, the channel it will open in permitting you to have an open dialogue could be invaluable. Saying nothing is a personal and professional disservice.
- 2010 National Institutes of Health – National Institute on Aging: Alzheimer’s Disease Progress Report: A Deeper Understanding
- 2011 Alzheimer’s Society: Short Changed – Protecting People with Dementia from Financial Abuse
- 2011 National Institutes of Health – National Institute on Aging, “Forgetfulness…Knowing When to Ask for Help”
- Alzheimer’s Association (www.alz.org) – “The 7 Stages of Alzheimer’s”, “10 Early Signs and Symptoms of Alzheimer's”
- Journal of Financial Planning, “Is Your Firm Prepared for Alzheimer’s?” – Steve Starnes