A client you’ve known for decades is behaving abnormally.
A consummate saver, your client is now spending heavily. They have a new love in their life, and they’re indulging that person with expensive gifts and exotic trips. They want to rewrite their will. The financial plan you constructed in their middle years now appears to be obsolete.
Are you seeing red flags?
“There’s a lot more people that are over 60, a lot more that are widows and widowers, a lot more that have had divorces,” said Shelley Forsythe, director of family enterprise planning with BMO Family Office. “So I’m finding this is more and more top of mind for advisors.”
Set a baseline
She said it is important to know the client well and be able to identify changes in behaviour: “Have they asked for a large amount to be redeemed? Do they have someone new who is coming with them to meetings to ask for money? Are there little risk factors or triggers that are a departure from how they would normally engage with you?”
Any of these, she said, could point to potential problems.
“We want to make sure we’re having good conversations and regular check-ins, especially with elderly clients,” she said. “And there’s a real art to being able to have these kinds of candid conversations.”
She said people are often excited to talk about new relationships, offering a good chance to get an overview of the situation.
Nathalie Boutet, a lawyer with Boutet Family Law in Toronto, said it can be difficult to discern predatory relationships because there are often conflicting motivations: love and need.
“If someone is lonely, and they have someone in their life who is spending their money but is also taking care of them, are they a victim? If someone is willing to take me for my hospital visits and will get my meds for me and they also get a financial benefit, is that predatory? It is hard to say,” she said.
The best way to analyze the situation is through conversation with the client, she said.
Foster discussion
Boutet pointed out that the client’s children are often the most suspicious of a late-life relationship, and they may fear losing inheritance to the newcomer.
“There’s a tendency to wonder why these people are together,” she said. “The advisor could facilitate conversations between their client and the children … perhaps to put a plan in place.”
Forsythe often coordinates such meetings, balancing the concerns of wealth preservation and legacy planning. The meetings also give her a chance to meet all the players. And if there are concerns about the client’s capacity, that can be brought up in a gentle way, she said.
Involve professionals
When a pre-nuptial agreement is under discussion, Forsythe advises not only that it be constructed by legal counsel but also that all sides be separately represented.
“It’s well worth paying the legal fees to make sure you have all your ducks in order, that you’ve reviewed all your different options, that you’ve ensured your plans can be carried through the way you intend,” she said.
Boutet said pre-nuptial negotiations are a time for transparency about wealth.
“One of the difficulties is the financial disclosure. Some people are reluctant to do that,” she said. “But we don’t want the person who gets into an agreement to later say, ‘Oh, if I had known you had so much money, I would have negotiated differently.’”
Toronto lawyer Kim Whaley of Whaley Estate Litigation Partners said pre-nuptials are not the kind of arrangement a financial planner or advisor should try to construct without professional help.
“To solidify the deal, it should go to a lawyer,” she said, pointing out that a lawyer has a legal duty of care when making an assessment with regard to capacity.
Document everything
“Make sure you’re taking really good notes about any conversations you’re having, because you never know when you might be called as a witness,” Forsythe said. “It’s adding that extra layer of clarity if it ever did go to court.”
“Document changes in instructions, appearances, wishes and wants, and all of that,” Whaley said. “Take as many notes as possible. If there are questions of capacity, then properly document that.”
Be vigilant
Forsythe said it boils down to staying observant. She suggests financial advisors remain candid and casual in their conversations with clients.
“You might say, ‘Tell me a little bit more about what are you planning. What’s going on in your life that you feel you need this [large amount of cash]?’ You’re just trying to get to the heart of the matter about why this change in behaviour.”
“Often the financial planner has had a long-term relationship with the client, and can more readily identify changes in patterns, in planning, in behaviours,” Whaley said.
And if all else fails to allay concerns, she said the simplest strategy may be to ask the client if anyone is pressuring them, or if there are any medical or cognitive issues you should be aware of.
“The best practice is transparency,” she said. “Say to that long-standing client that you are having some concerns about what you’re being asked to do. I think you have to have those hard discussions. You can’t just skirt them.”