Most seasoned financial advisors have a story or two about seeing a valued client who once was fully capable begin to struggle with basic details about their financial affairs. Lapses can range from difficulty recalling who holds their power of attorney to forgetting the details of an annuity or where their will is kept.
On top of the personal distress you may feel in seeing a client begin to lose his or her mental capacity, you may be unsure how to proceed: should you intervene and risk doing the wrong thing, or do nothing and leave the client to struggle alone?
Says Laura Tamblyn Watts, a lawyer, longtime advocate for the elderly and recently appointed national director of law, policy and research with CARP (formerly the Canadian Association of Retired People): “Everyone agrees: people in the financial services industry are betwixt and between – damned if they do; damned if they don’t. If they don’t report [capacity issues], they’re already at risk of liability. If they do report, they can be at risk of violating privacy laws [and] perhaps making [the situation] worse.”
Although the challenge has long been recognized by both advisors and their firms, the tools to address clients’ declining cognitive powers have proven to be elusive. That may be changing. Tamblyn Watts, co-author of a joint report released in November 2017 by the Canadian Centre for Elder Law (CCEL) and the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada) on dealing with vulnerable investors, says the research underpinning the report revealed deep fissures of concern in the financial services industry. Indeed, she adds, both firms and advisors are reporting daily challenges with elderly clients and are looking for guidance and support.
“We’ve had major, brand-name fund [companies] come to us and say, ‘We don’t even need to wait for the regulators [to act]. Tell us now what is best practice’,” Tamblyn Watts says.
The regulators are paying attention. In late March, the Ontario Securities Commission (OSC) released a staff notice dealing with seniors’ issues, which includes several of the key recommendations from the CCEL’s and FAIR Canada’s joint report. (See story on page 1.)
OSC Staff Notice 11-779: Seniors Strategy calls for a major overhaul of the way financial services are delivered to seniors. Key recommendations include: the use of “trusted contact” persons who may be reached if there are concerns about a client’s behaviour or transactions in his or her accounts; providing a legislated “safe harbour” to protect advisors and firms from liability if they decide that a temporary hold should be placed on a client’s account due to suspicions of fraud or impaired client judgment; specific guidance for firms and advisors in collecting information from vulnerable clients; guidance in supervising client accounts; and communicating with and supporting clients in decision-making as they age.
The OSC’s notice contains recom- mendations regarding confusing and misleading titles, breaking down silos between regulators and organizations to deal with policies for matters such as powers of attorney and privacy laws, and improving OSC staff support, research, education and outreach.
“These are more than just recommendations,” says Tyler Fleming, director, investor office, with the OSC. “These are commitments that the OSC will be pursuing over the coming year.”
Although Fleming notes that the OSC can’t bring about change in other jurisdictions in Canada, the regulator is looking to engage with other regulators and agencies across the country. “We think we have something important to add to the discussion,” he says.
The OSC is far from alone. A wave of change is washing through the country. Other provinces, activist groups and financial services firms are developing new tools to support aging clients. These changes include legislation, conduct protocols produced by groups such as the CCEL, and internal company guidance tools.
For example, New Brunswick’s Financial and Consumer Services Commission (FCNB) has been active in this area. According to an FCNB consultation paper regarding senior financial abuse, also released in November 2017, New Brunswick and Nova Scotia lead the country with the highest percentage of seniors per capita – almost 20% – with that percentage expected to rise significantly in the decades ahead. The consultation paper calls for several related actions, including defining key terms such as “financial abuse,” which appears in the federal Privacy Act and other legislation, but is not defined explicitly.
When seniors are being exploited, this can be difficult to spot, notes Rick Hancox, CEO of the FCNB. As examples, an adult child may begin cashing out a parent’s RRSP without the parent’s proper consent or a caregiver may use a senior’s credit card to fill up the gas tank in the caregiver’s car or to buy themself a TV.
The FCNB’s initiative, which, Hancox says, will be moving forward this spring, aims to provide a framework to allow people to take action more easily when they suspect a senior is at risk of financial abuse.
But finalizing the changes will be complex. Hancox notes that achieving balance between recognizing the potential for false allegations of abuse and the need to protect clients from harm is necessary.
“This is an important initiative,” he says. “And it is relevant right across the country.”
Industry organizations also are weighing in on the issue. The Investment Funds Institute of Canada (IFIC), for example, released a comprehensive response to the FCNB’s consultation paper, including support for “safe harbour” legislation, definitions for the term “financial abuse” and the creation of “trusted contact” guidelines for member firms.
An email to Investment Executive from Paul Bourque, IFIC’s president and CEO, commends the FCNB’s efforts: “Clarity in how to handle these difficult situations will be very helpful to advisors and their firms. In addition to contributing to these efforts with our submissions, IFIC is tackling the issue through our Vulnerable Investors Task Force, which is focused on defining best practices and providing practical tools to help guide advisors in their work with these investors.”
Taken together, these initiatives and responses ring in a new era, says Tamblyn Watts: “There has never been a time when I have seen as many key players as invested in this issue. These are extremely robust efforts.”
Demographics are a key reason why change is taking place on several fronts all at once. According to the most recent census figures, more Canadians are over the age of 65 (almost 17%) than are younger than 14. Furthermore, the percentage of seniors is expected to increase to 25% by 2031. Notably, the fastest-growing group is centenarians.
Recent research points to the complexity and depth of the problem. The OSC’s Seniors Strategy cites U.S. research that suggests trouble with money is among the first clinical signs that an individual may be in the early stages of dementia. That’s a particularly difficult problem for advisors, given that clients may show few other signs of mental decline. Thus, advisors may often be the first to know a client is struggling.
Then, there’s the sheer complexity of financial products and financial planning strategies, which seems to increase every year. More and more, retired people have a murky financial picture because assets and income streams come from many sources while those clients still carry debt. And, of course, although the document explosion can be daunting for anyone, seniors who face a heap of multi-page forms, in particular, may become confused and vulnerable to abuse perpetuated by other people.
Research indicates that people grappling with cognitive decline frequently are reluctant to give voice to their struggles or ask for help. That may be due to embarrassment or even lack of awareness that they experience recurring mental lapses. To make matters worse, family and friends also may be reluctant to act.
According to the FCNB’s consultation paper: “In a 2017 FCNB provincial survey, 25% of adults surveyed reported they personally know a senior who has or may have been a victim of financial abuse. However, 78% of those who knew of or suspected financial abuse did not report it.”
However, you don’t have the luxury of doing nothing. Krista James, national director of the CCEL, which is based out of the British Columbia Law Institute at the University of British Columbia, emphasizes the need for advisors to be in control before a client begins to struggle with mental capacity.
“Mental capacity is and has always been fundamental to the practice of any professional,” James says. “Anytime we interact with a client, we need to make sure they understand what is going on.”
Ways you can prepare include training and knowledge of conduct protocols, establishing a support network of professionals and agencies that can help, and using some fairly simple techniques to probe a client’s capacity, James says.
“Advisors need to know what mental capacity issues look like,” she says. “They need to do an informal assessment in their heads, quickly, to know if a client has the capacity to do a transaction. They need to know what questions to ask. Are there local agencies they can call? And in what circumstances [should those agencies] get involved? [Advisors] need to know, before they walk into that interview room: what their legal options are in their jurisdiction; what their firm’s policy is; when and how to escalate [any intervention].”
This is the first part in a two-part series on working with clients who have declining mental capacity. Next month: Practical tips for recognizing declining mental capacity in aging clients and steps you can take to protect your clients’ best interests while remaining compliant.