State and federal regulators have trained their sights on the relationships between financial advisors and clients who may have diminished capacity.
That warning comes from Alyssa Meyer, a vice president and director of compliance for Raymond James Financial, who spoke at the Women Advisors Forum in Dallas on Wednesday.
The good news: Meyer suggests several steps advisors might take to avoid the regulators' glare. "It's a little bit of a dance," Meyer says, who notes that many of the measures regulators use are subjective, rather than objective.
Advisors should start by familiarizing themselves with the regulations aimed at stopping elder abuse, she says -- in both their own states and the states where their clients reside. The definition of diminished capacity varies from state to state, she says.
GAINS & LOSSES
Meyer also encourages advisors to evaluate elderly clients' accounts not just in terms of performance overall but in terms of a specific gains and losses, because specific depletions may draw regulators' attention even if overall the portfolio performs well.
With elderly clients' accounts, advisors should be on the lookout for irregular withdrawals. Since financial advisors are expected to report elder abuse in many states, they should note if it seems a client is repeatedly taking out large sums, perhaps to give to a relative or acquaintance.
Advisors should also take precautions to document their own dealings with older clients, she says. Often it's the heirs and not the clients who raise allegations of wrongful actions by an advisor. Meyer recommends advisors consider drafting "client service letters" that recap both a conversation and any actions the advisor got approval to take.
At a minimum, she recommends that advisors take good notes about their dealings with all clients. When writing those, advisors should stick to the high school journalism formula: who, what, when, where, and why. That last element is extremely important for advisors, she says, and should include a clear explanation of the rationale for any investment decisions that were made.
Meyer also recommends asking a co-worker to read the notes to make sure the reasoning makes sense.
For portfolios of older clients or those with diminished capacity, she also recommends that advisors avoid high concentrations of complex products. Such investment patterns may draw the interest of regulators and raise questions about product suitability, she says.
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