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October 4, 2014

Investment Industry's Response To Handling Clients with Dementia

I had the opportunity to attend SIFMA’s Senior Investment Forum this week. It was an industry seminar focused on cognitive impairment (dementia, Alzheimer’s disease and related ailments). The timing was somewhat ironic given that on the same day of the conference, the family of Malcom Young—the founding member of Australian rock band AC/DC—confirmed the reason for the guitarist’s retirement: dementia. (I’m listening to some of his work as I write this.)
A positive takeaway from the conference is the investment industry’s awareness of the problem. Some firms have set up protocols, implemented training programs, or are otherwise are educating employees about identifying and working with clients showing signs of cognitive impairment. Wells Fargo Advisors distributes a pamphlet entitled “A Quick Reference Guide for Elder Financial Abuse.” Ameriprise Financial gives its financial advisers a “compliance snapshot,” which has guidance for working with clients believed to be “experiencing diminished mental capacity.” Bank of America Merrill Lynch has a director of financial gerontology. Cynthia Hutchins, who holds this role, believes this is the first such position of its kind.
Now, the bad news. Resolving problems with investors who are believed to be cognitively impaired is difficult and complicated. When a problem is suspected, the industry’s best response right now is to delay requests for withdrawals as much as possible while notifying supervisors in the firm and reaching out to local and state authorities and agencies for assistance. (Exceptions are made when there is a clear financial need, such as an electricity bill or taxes.) An investment firm can contact state agencies and law enforcement (and many do), but if a person has legal authority to make a withdrawal, the firm is in a tough spot.
Adding to the difficulty are clients who refuse to accept the fact that they are being victimized. One panelist told a story about a client of his firm who thought she had won about $20 million from the Publisher’s Clearing House sweepstakes and needed to withdraw approximately $100,000 to cover the taxes. Neither her financial adviser, the firm’s compliance department nor local law enforcement could convince her that she was being scammed. Fortunately, in this instance, the crooks were caught before they swindled the woman out of her savings.
While it is a positive to see industry professionals being trained, they cannot perceive changes in customers they don’t regularly interact with. One speaker brought up electronic banking as an example. Online banking and ATMs are convenient, but there is no regular human interaction to spot a customer whose cognitive skills are declining. It would have been interesting if a representative of an online brokerage firm was on one of the panels, but unfortunately, this was not the case.
There are steps you can take. Some firms are now asking clients for an emergency contact. This is a person who can step in and be an advocate for an investor should he or she be suspected of having cognitive impairment or otherwise have diminished capabilities. I would contact both your bank and brokerage firms to see if it is possible for you to list such a person. Rick Fleming, the director of the SEC’s office of investor advocate, raised the possibility of requiring the person with power of attorney to clear his or her actions with a separate party. You could, for example, require your son or daughter to report periodically to your CPA or estate attorney. Exercise helps reduce your chances of experiencing significant cognitive decline. Social interaction reduces the chance of fraud. FINRA is seeking public comments on a proposal governing whether brokerage statements should be sent to investors who are disabled, incapacitated or living in a nursing home. Contact FINRA if you have an opinion you’d like to share. Finally, I’ll give you one of my suggestions: have a written emergency plan for the steps someone you trust should take in the event you are no longer able to manage your own finances.
The Week Ahead
Third-quarter earnings season will officially start. S&P 500 member companies scheduled to report include Yum! Brands (YUM) on Tuesday; Alcoa (AA), Costco Wholesale (COST) and Monsanto (MON) on Wednesday; Family Dollar Stores (FDO) and PepsiCo (PEP) on Thursday; and Fastenal Company (FAST) and Progressive (PGR) on Friday.
There isn’t much on the economic calendar. The minutes from the September Federal Open Market Committee meeting will be released on Wednesday and September import and export prices will be released on Friday.
The Treasury Department will auction $27 billion of three-year notes on Tuesday, $21 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday.
About The Author - Charles Rotblut, CFA is  the VP and Editor for American Association of Individual Investors (AAII).  Charles is also the author of Better Good than Lucky.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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