A CANADIAN IS DIAGNOSED with dementia every five minutes. Within a generation, that rate is expected to more than double.

That spells “dementia crisis,” according to Mary Schulz, director of education with the Toronto-based Alzheimer Society of Canada. “Dementia” is the umbrella term to describe several diseases that rob us of our cognitive abilities. Dementia is a much feared and stigmatized illness that eventually affects a person’s every function. There are instances of sudden-onset dementia – from a stroke, for example – but, in many cases, the condition creeps up on the patient over years before manifesting itself as a full-blown disease.

Changes in behaviour and judgment, which can profoundly affect a client’s ability to manage his or her financial affairs, are often the first signs of cognitive decline. That, Schulz says, puts the financial services industry on the front lines of the battle: “Financial advisors should keep their radar up.”

But are you prepared for the rising tide of clients suffering from cognitive decline? And how can you ensure your elderly clients receive the appropriate guidance while you remain compliant?

“The vast majority of advisors are not homing in on the issues of incapacity,” says Karen Henderson, eldercare consultant and CEO of Long Term Care Planning Network in Toronto. “Nobody really knows how serious the problem is because no one is keeping track.”

Henderson points to the recent case of an 86-year-old woman who pumped her life savings into volatile mining stocks, losing $470,000 in the process. This woman was, arguably, long past the point of being able to make such decisions, yet it took a family complaint to bring the case to light.

This raises the question: how many similar situations have yet to surface?

Regulators, such as the Investment Industry Regulatory Organization of Canada and the Mutual Fund dealers Association of Canada, have acknowledged the vulnerability of senior clients, says Ellen Bessner, partner with law firm Cassels Brock & Blackwell LLP in Toronto.

“There’s a real push by the regulators to protect seniors,” says Bessner, who specializes in litigation and regulatory defence of advisors.

Advisors need to equip themselves properly when dealing with senior clients, Bessner says. Seniors, she notes, are defined as anyone over age 60, which represents a huge swath of most advisors’ books. Regulators take complaints against advisors that involve senior clients very seriously, Bessner adds, and such complaints can put the advisor’s business in jeopardy.

If you ignore the signs of cognitive decline in a client and then execute a transaction that does not turn out well, Henderson says, “[You are] at the top of the list for being sued.”

However, Henderson adds, not every cognitive lapse is a sign of impending dementia. There are times when clients might seem “off,” thanks to the side effects of medication or due to a condition such as diabetes.

Paul Bourbonniere, a certified financial planner (CFP) with Polson Bourbonniere Financial Planning Group Inc., which operates under the DWM Securities Inc. banner in Markham, Ont., says dealing with a client who is experiencing cognitive decline is a matter of “when, not if” for advisors.

Bourbonniere has been in a few situations in which a perfectly coherent client deteriorates, in just two years, to the point at which he or she is unable to recognize even family members.

“Once you’ve dealt with the process,” Bourbonniere says, “it’s powerful, because you see how different someone gets.”

Glen Rankin, a CFP with Rankin Financial Planning Ltd., part of Assante Wealth Management (Canada) Ltd. in Truro, N.S., works with a couple in their 90s who, a decade ago, each started showing signs of mental decline. They hadn’t worked with an advisor before their daughter introduced them to Rankin.

“Although [the father] knew his health was slipping,” Rankin says, “it took some time to persuade him to let go of the controls.”

The early steps Rankin took with the couple’s lawyer, accountant and daughter paid off. Today, although both spouses suffer from serious cognitive loss and require home care, they still live together in their home overlooking the ocean. Says Rankin: “They are able to live in this stage of their lives on their own terms, thanks to the groundwork that was laid early.”

Not every story progresses so well. Below are some steps you can take to protect both your elderly clients and your business:

Keep records

Take copious notes for each client, Bessner says, and not just when a client undergoes a flip-flop in investing style.

One of the first things you should get from new clients is the name and contact information of a person to contact in case of emergency. Get signed permission to use it if you have any concern over cognitive health and decision-making. Update this information each year.

Clients also must have a signed power of attorney (POA) designation and a will. Not all POAs are created equal, Bessner says, so have these documents vetted by your firm’s compliance or legal department. If the client does not wish to share his or her POA with you, get your client’s lawyer’s contact information and signed permission to speak to the lawyer as the emergency contact.

Be prepared

Rankin follows an adage from Confucius: “Build the well before you are thirsty.”

Early on, before there are health issues, Rankin says, urge your clients to speak to their beneficiaries, executors, lawyers, accountants and other stakeholders to discuss their wishes.

Once those wishes are formalized, get permission to work with these stakeholders so that if the time comes when a POA is exercised, you can work with these individuals in the best interests of your client.

“We continue to have a duty of care for our client that extends beyond their mental capacity,” Rankin says. “Until the last nickel is dispersed, we working for them.”

Check in more often

Changes, cognitive or otherwise, can be subtle and difficult to notice if you see your their clients only once a year, says Pat Irwin, president of ElderCareCanada, an eldercare consulting firm in Toronto. Sometimes, the first hint that things aren’t the way they should be is subtle and can be noticed only with more frequent contact.

Bourbonniere’s policy is to see his clients two to four times a year: “A lot can happen in six months.”

If Bourbonniere notices any signs of cognitive deterioration, he asks the client to bring his or her spouse or another family member to the next meeting to see if that opens up the conversation.

Repeat yourself

Everyone is entitled to a memory lapse now and again. One way to begin checking whether a mental slip is a symptom of something serious, Bourbonniere says, is to review the decisions made at the prior meeting. If your client remembers very little of the decisions made in the previous meetings, it could be a sign of need for some extra support.

It’s also important, Irwin says, to ensure that your client feels comfortable speaking about these matters. Making dementia part of the conversation also can help to reveal whether the condition runs in your client’s family.

Ask for help

If you are concerned about your client’s cognitive degeneration, consult with a more senior person in your firm, Henderson says: “If you are concerned, step back and get more experienced advice.”

Sometimes, it’s necessary to bring in outside help to provide assistance to a client who might be struggling with the early symptoms of cognitive degeneration.

Bourbonniere has invited clients to meet with eldercare consultants, who provide information on such issues as long-term care options, insurance and living wills. These consultants often are better than advisors at judging the state of a client’s cognitive decline.

“You have to be very careful,” Bourbonniere warns, “because independence is one thing [elderly clients] hate to lose. If you bring in too much outside help, [clients] will dig in their feet. You only do it when you reach an impasse and don’t know what to do next.”

Eldercare consultants usually charge about $150/hour, Irwin says, which can be paid by either the advisor or the client: “[A consultation] can help you avoid some very expensive mistakes.”

© 2013 Investment Executive. All rights reserved.