David Gutzke couldn’t help noticing the changes. His longtime client, Ron Dudley, an astute, 62-year-old entrepreneur and an admired figure in his community, suddenly couldn’t remember things anymore. At first, he started to miss details of important meetings and conversations but soon couldn’t recall even the names of family members.
“It came on fairly quickly,” Gutzke, a wealth management advisor in the high-net-worth unit of Minneapolis-based U.S. Bank, says of his once-sharp client. “He just wasn’t remembering things and also not using the best judgment.”
The onset of Alzheimer’s hit the family hard, but they pulled together and got their arms around it as quickly as they could. Still, Gutzke says, there were flare-ups with the children initially arguing about who should help the beloved family patriarch with financial and health care decisions.
“Initially a diagnosis like this can be almost debilitating for some family members and often they need to work through the shock and adjust for the new normal,” Gutzke says.
No one wants to talk about dementia, but it’s a conversation many people—and their advisors—need to have if they want to be fully prepared for the risks of retirement. Individuals who haven’t thought through what might await them not only face the threat of throwing their families into chaos but also risk putting their assets on the line by making themselves vulnerable to con artists and other financial predators.
Worse, failing to plan for cognitive decline can lead to what many see as the nightmarish scenario of guardianship, with the individual’s financial matters and health care directed by a court-appointed guardian or conservator.
For advisors, the repercussions can be immense. Not helping clients plan for possible cognitive impairment can lead to legal dilemmas that can land advisors and their banks in trouble. Privacy issues, conflicting principles and a host of other concerns can easily hobble and paralyze advisors, leaving them unable to act on their clients’ behalf.
As the nation’s 76 million baby boomers continue to retire, advisors can expect to encounter more clients with memory issues.
An estimated 10 million Americans have dementia or cognitive impairment with 2 million new cases reported every year, according to research by David Laibson, a professor of economics at Harvard University. More than 40% over the age of 80 have dementia and almost 70% are cognitively impaired, researchers say.
Banks are certainly seeing the effects of this issue. Wells Fargo, for instance, has seen a tripling in the number of calls it fields from advisors concerned that their clients are either cognitively impaired or being abused.
In 2010, the bank received about 30 calls a month, but now it’s up to about 100, says Ron Long, head of the firm’s Regulatory Affairs unit and the recently launched Elder Client Initiatives group.
The new seven-member group assesses reports as they come in, guiding advisors on what to do, including whether the reports need to be filed with the local Adult Protective Services office in cases where financial abuse is suspected. The team, which is based in St. Louis, includes a lawyer who manages five elder care associates and one intern.
Advisors working with clients showing early signs of cognitive impairment are “probably in one of the worst places they can be,” says Long. They face legal risks at every turn and often find themselves in damned-if-I-do-and-damned-if-I-don’t situations.
Suppose, he says, that a client with signs of impairment calls an advisor and asks him to sell all his IBM shares. If the client says, ‘Sell all of my IBM. Everything I’m hearing from Silicon Valley is that mainframe computers are not going to be useful anymore,’ the reason for selling at least is rational, Long explains. If, on the other hand, the client says, ‘Sell all my IBM. I heard the Martians are landing tomorrow and they want to take me with them,’ the reasoning isn’t rational and the advisor should heed the clear red flag.
In either case, the decision to sell IBM would be difficult for any advisor to make. If the advisor sells the shares and the transaction proves disastrous, the advisor and his bank could be held liable. If, on the other hand, the advisor doesn’t sell the shares, and the transaction, had it been made, would have been beneficial to the client, the advisor and the bank could also potentially be liable.