man with money in pocket

Family members may want to stay informed about this aspect of their relatives’ lives, to make sure unscrupulous financial professionals do not take advantage of senior citizens who are cognitively impaired.

About 5.2 million Americans over the age of 65 suffer from Alzheimer’s, according to a 2011 report from the Alzheimer’s Association. About 200,000 people are afflicted with younger-onset Alzheimer’s, and by 2050, as many as 16 million Americans will have the disease.

Moreover, 50 percent of Americans are projected to develop dementia at some point. One in eight people over the age of 65 and 43 percent of those over age 85 suffer from it right now. With many in the large baby boom generation now reaching advanced age, the numbers are expected to explode.

Investment News Reports

According to a report in Investment News, financial advisors should be mindful of the special needs of elderly customers who may begin to show symptoms of Alzheimer’s, as well as special risks that come with guiding their investments decisions.

A customer showing signs of dementia or Alzheimer’s raises two major issues for a financial advisor, the report says. The first is cost. Naturally, this life-changing disease will affect asset allocation decisions for all but the wealthiest clients.

Figures from the Alzheimer’s Association show that the cost of caring for those with Alzheimer’s totaled about $183 billion in 2011, an $11 billion increase over the previous year and growing at a rate more than four times faster than that of inflation.

Investment News reported that the cost of caring for a person with Alzheimer’s over six to eight years – the typical course of the disease — can run between $600,000 and $800,000.

In addition to cost, there are legal risks for financial advisors if their customers are suffering from dementia, and family members may have to become much more diligent in monitoring the financial well being of their elderly parents or other relatives.

Hollie Mason, Associate Counsel for TD Ameritrade Inc

Financial advisors cannot meet their fiduciary obligations to a customer if the person’s behavior suggests cognitive impairment, according to Hollie Mason, associate counsel for TD Ameritrade Inc., as quoted in the Investment News report. If a customer has not given someone the power to act on his or her behalf, a financial advisor may have to cease making investment recommendations to that customer.

Mason also said that advisers must handle mentally infirm customers with extreme caution. If there is a mental capacity issue, she said it is not the time to sign a person up for an estate plan or a complex new investment strategy. Any customer of advanced age with symptoms of Alzheimer’s or some other from of dementia should immediately be placed in risk-management mode.

Some of the advice that Mason provides for financial advisors is useful information for family members. For example, be aware that a person is not deemed legally incapacitated until a doctor declares it.

The customer should have a conversation with the brokerage firm’s branch manager, and if the person evinces any lack of understanding, the financial adviser needs to immediately contact family members to ascertain whether the customer has given power of attorney to anyone and whether it is limited — only effective when the person is not incapacitated — or durable, which means it is effective through incapacity. Power of attorney documents should be drafted by an attorney.

Be apprised that financial advisors should be documenting every interaction they have with a customer who is potentially cognitively impaired. According to the Investment News report, this includes meetings, conversations and other communications with the customer, family members or any others about the situation.

Ideally, family member and financial advisers should talk to elderly investors about Alzheimer’s and other forms of dementia and the affect it can have on their finances well before the person presents with symptoms.

Everyone finds such conversation difficult, but they could not be more necessary. A frank discussion and contingency plans can reduce the risk to the investor, the investor’s family members and the financial professionals who serve them.

Brian Parker, Managing Director of EP Wealth Advisors Inc

In fact, Brian Parker, managing director of EP Wealth Advisors Inc, told Investment News that financial advisers who do not address ahead of time the possibility of a customer developing Alzheimer’s or dementia, either with customers or trusted family members, are putting themselves and their customers at risk. If the signs of cognitive impairment appear, and the advisor has none nothing, it’s already too late, Parker said.

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