BOSTON -- Relatively few advisors have acted proactively to meet the challenges presented by clients with diminishing mental capacities.

To judge from the Financial Planning Association conference here, many advisors are aware of the potential challenges, but few have put plans in place. Indeed, several dozen advisors raised their hands when asked if they had dealt with clients suffering from diminished capacity. Only six or seven indicated that they had a plan to respond to those situations.

Those situations will become more common, says Robert Mauterstock Jr., a retired advisor and CFP who speaks and writes on elder care issue and who presented at the conference. He noted that the combination of the fastest-growing demographic being the over-85 group, plus the increasing rates of dementia, makes for a perfect storm for advisors.

"We as financial advisors are entering the perfect storm," he says. "This is going to become an increasing problem for you as advisors."

Consequently, advisors should put formal plans in place both to better serve their clients and their relatives, and to guard against fallout and potential liability that could damage their practice. To that end, Mauterstock offered several specific ideas for advisors covering asset protection, long-term care and engaging clients' relatives.

First, he urges advisors who work with aging clients to train themselves to look for signs of diminished capacity, which often emerge only gradually. He offers some common scenarios: "Is your client all of a sudden starting to show up late for appointments? If they start to ask a lot of questions? Do they have difficulty with simple instructions? Do they need directions on how to get to your office?"

He suggests that advisors, especially those serving older clients, develop a diminished-capacity checklist, a reminder to evaluate a client's situation beyond the investment portfolio, to check for things like whether there is a durable power-of-attorney agreement in place or if the client happens to be a trustee. If a trust is in play, Mauterstock notes that it's important to determine whether there is a diminished capacity clause.

If clients have neither of those, he suggests asking if there is a person that the advisor can share their information with in case there is an issue in the future. "That is a very important role," he says. And from that point on, he points out, it is crucial that the advisor and the firm's staffers document every interaction with the client.

Mauterstock also recommends that advisors have a conversation with their aging clients about their plans to cover medical expenses down the road, touching on issues like the limitations of Medicare and broaching the subject of long-term care insurance. In part, discussing long-term care issues early on can be a hedge against future reprisals from the client's adult children. Imagine a scenario in which 10 years of intensive elder care depletes a client's resources, and the son or daughter confronts the advisor demanding to know why their parent was not offered long-term care insurance.

"You need to make a determination if in fact they want it, and [if they] choose not to take it, have them sign a form indicating that they turned it down," Mauterstock says.

He also says that advisors reach out to outside experts to help handle the affairs of clients who are losing their faculties, such as an elder-law attorney, a geriatric care manager or an insurance agent to discuss long-term care issues.

"You can't know it all; you'll never know it all. You need other professionals to help you," he says.

Similarly, advisors can help their cause when they involve the client's relatives, perhaps by helping to convene a family meeting. Involving a client's family can certainly pay dividends for the firm down the road by improving the chances that the children eventually become clients themselves. But more immediately, the advisor can help the family work through important decisions like whether an elderly relative will remain at home, and, if so, who will be primarily responsible for their care.

"You have to build a relationship with the family of your client. If in fact one of your clients begins to [suffer from] diminished capacity, it's going to affect the entire family. The entire family's going to be affected by that situation," Mauterstock says. "You as an advisor have to learn how to work with that kind of family."

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