Maggie readily admits that her memory isn't what it used to be, but in this case she realized that she needed help. So she called her advisor, Jean Dorrell, a certified estate planner and founder of the estate planning firm Senior Financial Security Inc. in Summerfield, Fla. "I think I made a mistake," she told Dorrell.
It turned out that the insurance salesman was someone Maggie's husband had worked with years earlier, but the policy in question was inappropriate for Maggie given her age and health history, not to mention the fact that she already had plenty of insurance, according to Dorrell. "He knew that she would not be accepted on that policy and was just trying to make a quick commission," Dorrell says of the salesman.
Dorrell, who requested that Maggie's last name not be used in this article, first tried to stop payment on the check. But it had already been cashed, so she and Maggie called the insurance company to cancel the policy and even received a refund.
As baby boomers retire and enter their twilight years, advisors can expect to see more clients like Maggie who are beginning to lose their cognitive acuity or are suffering from dementia-related diseases, such as Alzheimer's.
Research firm Cerulli Associates estimates that advisors on average currently serve seven clients suffering from Alzheimer's, a number that is expected to grow as their clients age and live longer.
The legal challenges such clients raise for advisors can be significant. Clients suffering from cognitive decline may request transactions that are out of character, or worse, not in their best interests.
In such situations, advisors must engage in a delicate balancing act, weighing their obligation of confidentiality to clients against their duty to do what's best for them. They may want to reach out to family members, but because they cannot share information about their clients' accounts with outside parties, they may find themselves in a classic damned-if-I-do-and-damned-if-I-don't legal conundrum.
Indeed, whichever decision they make could open them up to potential legal liability.
Bernard Krooks, a founding partner of Littman Krooks, a law firm that specializes in elder law, recalled such a situation. A longtime client received a call from an individual who "no longer understood what was going on" and wanted to know if it was okay to contact other family members to let them know that "mom was losing it."
It was a sticky situation, he says, but they were able to get the client to consent to having an adult child participate in the decision-making process.
Unfortunately, many financial advisors and their firms are sticking their heads in the sand, unwilling to confront the reality of these legal challenges and prepare for them. "No one wants to talk about Alzheimer's. It's dicey," says Scott Smith, an analyst at Cerulli Associates and author of a report on the challenges of an older client base. Most advisors, he explained, are uncomfortable questioning their clients' mental capacity.
Their resistance is also tied to the fact that elder-care issues are an evolving area for the financial advisory industry with few state or federal statutes to guide them. With little case law, it's difficult to establish guidelines on how to work with clients with diminished cognitive ability, says Steve Starnes, a financial planner with The Monitor Group Inc., an investment advisory firm in McLean, Va.
The lack of guidance, however, hasn't stopped Dorrell from tackling the issue with her clients head on. "I'll bring it up to the client and say, 'I'm starting to have concerns about your memory. Do you have any memory problems that you're aware of? Do other people ask you this?'" Dorrell says.
In fact, whenever she takes on new clients, she tests their memory by asking them questions about their birthday and wedding anniversary, their children, and other things they should know, including what they had for breakfast. "If I get any hint at all that there's a problem and this is a new client of mine I haven't worked with, I will always involve a family member," she says.
To make sure they can involve family members and avoid future legal quagmires, advisors should, as a matter of practice, ask for an emergency contact at the beginning of the relationship when setting up the account, say lawyers and other experts. "As a last resort, if all other efforts fail to get permission from the client to reach out to someone else, the financial professional can reach out to the person named as the emergency contact," says Starnes.