You have concerns about an elderly client’s apparent decline in mental capacity. The client asks you to complete a transaction that is inconsistent with his or her risk profile.

Or a member of your client’s family waves a power of attorney under your nose and instructs you to perform a transaction that is not in your client’s best interests.

These are examples of how financial advisors can easily stumble into ethical quicksand, says Rhonda Latreille, founder of Age-Friendly Business in Burnaby, B.C. Such challenges are becoming increasingly commonplace as the population ages, she adds.

“With the ranks of boomers and seniors swelling so rapidly that they now represent the largest and fastest-growing demographic in the country, liability is growing at breakneck speed,” Latreille says. “Costly legal mistakes are often made from a place of ignorance and good intentions.”

Ignorance about the cognitive issues affecting older people is not uncommon, and there’s plenty of misinformation around to muddy the waters even more. But it’s important for you to understand the implications of mental capacity — particularly if you work regularly with seniors.

For starters, declining mental ability is not a normal part of aging, says Latreille. Confusion and short-term memory loss can be the result of problems with medication, inadequate diet or sleep, or emotional upset, as well as Alzheimer’s disease or other brain impairments.

“Always assume cognitive ability first,” Latreille says. “Older clients may require more time or explanation, but that doesn’t mean they are unintelligent or incapable. Remember that while a client may exhibit signs of dementia, only a proper assessment can determine legal incapacity.”

According to the Canadian Centre for Elder Law, an individual is capable when he or she understands and appreciates the nature and consequences of a decision he or she is making.

Capacity was originally considered a binary concept: an individual was either capable or incapable. However, modern substitute decision legislation — particularly guardianship legislation — is moving toward a continuum model that reflects different thresholds of capacity.

“Capacity is decision-specific,” notes Krista James, staff lawyer with the CCEL and the B.C. Law Institute. “A person may still be able to make financial decisions even if they can’t remember their children’s names.”

Mental capacity can also fluctuate throughout the day and depend on the circumstances, James adds. “Elderly people are often better earlier in the day,” she says, “so it might be wise to schedule morning meetings.”

Signs of mental incapacity may include the following:

> difficulty understanding basic concepts;

> difficulty understanding complex concepts despite repeated explanations;

> memory loss;

> confusion;

> incoherence;

> repeating things several times.

Linda Cartier, a certified financial planner and president of Financial Decisions Inc. in Sudbury, Ont., says it’s easier to tell whether a client is showing signs of incapacity if you’ve known them for a while: “If they suddenly start displaying unusual behaviour, such as going off on tangents unrelated to the discussion or asking the same questions repeatedly, it may signal that there’s a problem.”

In such situations, it’s important that you be a good listener, says Cartier: “If you think the client may not understand what you’re talking about or if they’re not asking you enough questions, it’s a good idea to start probing. Ask them open-ended questions using clear language to gauge their level of understanding.”

If you suspect that a client has dementia, Cartier says, it may be appropriate to contact his or her family. However, such situations are extremely delicate and you require the client’s consent to discuss anything with family members.

Adds James: “You can legally and ethically breach confidentiality if someone is in actual danger. However, you should protect [confidentiality] unless you know that someone is going to be harmed or you’re assisting with a legal investigation.”

Rules regarding the disclosure of personal information vary by jurisdiction, James adds: “Your code of professional conduct covers the issue of confidentiality, so be aware of the code that governs you and learn what it says.”

The CCEL offers the following guidelines for working with older clients:

> always be clear about who your client is and what is in his or her best interest;

> meet with your client alone — helpers or family members accompanying the client may be abusers;

> take thorough notes to protect yourself and your client;

> be aware of potential abuse or exploitation of vulnerable or incapable clients;

> always refer abused clients to the proper community and protective resources.

Age-Friendly Business has collaborated with the CCEL to create a 12-part online webinar series covering everything from mental capacity and privacy legislation to family loans and elder abuse. The first webinar — When Your Client’s Mental Capacity is in Doubt: How Can I Help and What Do I Need to Know? — is free of charge.

The webinar can be downloaded at IE