Dementia and other declines in cognitive abilities can seriously threaten client relationships with their financial advisors.

Memory, attention and executive functioning can slow, or, in some cases, fail with age.

"Because all these skills are at the forefront of successful financial functioning, the first recognizable signs of cognitive impairment may well show up when we see how clients handle their money," says advisor Lauren Locker, whose New Jersey firm has a unit specializing in financial issues of the aging.

Over time, the problems may get worse.

"The client may lack capacity to understand or enter into a contract, including the ability to invest," says Ryan Wilson, senior strategic policy advisor at the AARP Public Policy Institute.

If advisors suspect a problem, says Wilson, their first step should be to consult their firms' protocols.


But financial advisors are not health professionals, and it can be difficult for them to properly identify older clients' diminished capacities. That's why it's important for planners to be aware of important red flags that often signal the onset of cognitive issues.

Basic early warning signs to look for include: declining abilities to do simple mathematical calculations, increased disorganization and memory lapses, such as forgetting appointments or failing to make payments.

A dramatic change in financial judgment, which could include a sudden interest in get-rich-quick schemes, or gambling, may also signal a change in cognitive ability. Significantly increased anxiety about money can be an additional indicator.

The key is for the advisor to know the client's baseline behavior and abilities, otherwise it will be difficult to spot change or deterioration.

"If someone is having trouble reconciling their checkbook, it's not necessarily worrisome if they had previously balanced their checkbook only once a year," says Locker. "But if this is someone who used to use Quicken to record every transaction, their lack of ability signals a big change."

The change is the concern, says Farida Ejaz, a research scientist at the Benjamin Rose Institute on Aging. Advisors should check in with older clients at regular intervals, she says, and if they get atypical or confused responses – or no responses at all – that can be a sign that something is wrong.

"Someone who was very with it and is now failing to answer some basic questions about their own accounts, or getting very confused – that's definitely a red flag," she says.

Asking the same question over and over can be an indication of a short-term memory deficit, which can often be one of the first signs of cognitive trouble, Ejaz says.

"If they fumble on the name of the person who is their financial advisor, or they forget, or use another name, and they do that more than once, that is another red flag," says Ejaz, "especially if they're forgetting the people they've worked with for the last twenty years."


Identifying cognitive impairment is crucial not only in maintaining the client-advisor relationship but in protecting older clients, says Ejaz, who studies elder abuse and exploitation. She says that literature in the field suggests that almost half of all older people with dementia have experienced some form of abuse, neglect or exploitation.

Because older people with dementia can be vulnerable targets, she says, financial advisors should also keep an eye out for unusual expenditures or payments to unknown individuals or groups, or even unusual transfers to relatives or friends.

Paul Hechinger is a New York-based freelance writer.

This story is part of a 30-day series on better serving seniors.

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