Planning to Prepare for Clients' Needs as They Age
SEPTEMBER 20, 2016
Kevin P. Sweeney, JD, CFPÂ®
Our nation’s population is aging, and about 15% of Americans are age 65 or older.
With an aging client population comes certain changes in health that could affect a firm’s ability to provide wealth management services to their clients. For Modera, a particular concern is how our relationships may be affected in working with clients whose mental capacity diminish as they age. Dementia, and particularly Alzheimer’s disease, are growing risks to seniors. It’s estimated that one in eight Americans over age 65, approximately 5.1 million people, have Alzheimer’s disease. Predictions are that the number of Americans suffering from Alzheimer’s disease may more than triple to 16 million by 2050.
While these concerns have been taken note by financial regulatory authorities, our regulators and federal and state authorities have provided little guidance to date. As a firm made up of planners and as fiduciaries, Modera wants to have plans in place and at the ready that will enable us to continue to work with our clients and look out for their best interests, should they experience cognitive decline.
Diminished mental capacity can manifest itself in at least a couple of ways that have financial impact:
1. Diminished capacity can leave a client more vulnerable to exploitation or elder financial abuse.
2. It can create a situation where we’re unable to communicate effectively with a client as to his/her wishes, goals and instructions to us, which ultimately could impair our ability to work with the client.
As a result, we took steps at Modera last fall to put a plan in place to help us prepare for situations where clients may experience diminished mental capacity as they age. We then educated our staff on our plan. The first step is for all employees to be alert to signs of diminished mental capacity that a client may exhibit. To assist our staff in creating that awareness, last fall my wife, who is a nurse practitioner with a specialty in geriatrics, spoke to employees in our Florida, Georgia, New Jersey, and Massachusetts offices about what to look for in terms of signs of diminished mental capacity. She also provided guidance on how to communicate more effectively with clients who may be experiencing cognitive impairment. Our goal certainly wasn’t to train our staff to diagnose specific diminished mental capacity but rather to help them recognize warning signs or red flags that could indicate a problem that needs to be addressed.
In addition, we instructed our staff to be proactive with aging clients and to have certain key documents in place before a client’s mental capacity becomes so impaired that he/she may not be able to execute needed authorizations. In particular, each client should have a durable or springing power of attorney over his/her financial affairs. That durable or springing power of attorney should include language broad enough to encompass working with a wealth manager, and it’s important that it be kept current. We also advised our staff to be aware of situations where an aging client is a trustee and to work with the client and his or her estate planning lawyer to see that there are appropriate provisions for a successor trustee in place so a trust doesn’t become inoperable. We urged staff to keep the client’s investment policy statement (“IPS”) up to date. The IPS documents a client’s decisions and instructions regarding how we are to manage the investment portfolio. While we review the IPS as a regular practice for all clients, with those who may be experiencing a decline in mental functions, it takes on particular importance. We also advised staff to contact our Compliance Department for assistance and to involve compliance with particular concerns or difficult situations.
The next procedure we implemented to facilitate our ongoing services to aging clients is the use of a consent form – whereby the client authorizes Modera to share information with a trusted family member or third party. By this consent form, a client in advance of any diminished capacity authorizes us to engage a trusted family member or friend in the wealth management process on behalf of the client and to share information with that individual should we later have concerns about the client’s mental capacity. The idea behind the authorization is to enable us to work with an advocate for the client, if that proves necessary, and to engage that advocate early on in the process.
When we first began rolling out the authorization form to clients, I’ll admit we did it with some trepidation. While we believe the authorization is a needed tool and is in a client’s best interest, we were concerned that clients may regard it as some form of negative comment on them. We’ve been pleased with the reaction from clients, however, as they have appreciated our concern about putting in place now a structure to help protect them as they age. As I’ve told clients in explaining the form, it’s our goal to be able to work with them in planning their future, whatever it may bring. As fiduciaries acting in our clients’ best interests, we believe it’s appropriate to plan ahead and be prepared now for the possibility some clients may experience diminished mental capacity.
Modera Wealth Management, LLC’s (“Modera”) is an SEC registered investment adviser with places of business in the Commonwealth of Massachusetts, State of New Jersey, State of Florida and State of Georgia. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services and/or a copy of our Form ADV disclosure statement, please contact Modera or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send.
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