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Diminishing Capacity for Financial Decision-Making
November 2017

Nov 30, 2017 | Families | Retirees

We treasure the relationships we have with our clients. Over the years and decades of serving as a trusted advisor we learn a tremendous amount about who they are and what is most important in their lives. As a result of this close relationship, the initial evidence that aging may be taking a toll on one’s capacity to make financial decisions may be visible to us, perhaps before anyone else.

For example, we have encountered clients asking for the same transfer of funds several times in one day, indicating a memory lapse. Other clients have had difficulty grasping financial concepts they previously had easily understood. Diminished cognitive function can show up differently in each person, but there are signs we have learned to identify that can raise red flags.

Confidentiality agreements with our clients prevent us from doing anything beyond mentioning these red flags to our clients. While we are committed to confidentiality and our clients’ best interest, sometimes these commitments conflict with one another. If our clients are making financial decisions that appear to be out of character and not in support of their firmly-established goals, it may be in the client’s best interest for us to contact a trusted third-party to express our concerns and provide support for seeking additional assistance. Yet our privacy policy prevents us from doing so.

Seniors are particularly vulnerable to financial fraud. Financial planners can be a first line of defense against such fraud. Financial regulators see the unique role that financial planners play in their clients’ lives and are expected to mandate something we have already been developing: a policy that gives us the right to contact a third party in the event we have concerns about our clients’ cognitive capacity to make decisions in their own best interest.

We will be asking each client to complete a document to provide us the names and contact information of the trusted individuals they would like us to contact if competency concerns arise. The document can specify the conditions under which we are to reach out to the trusted individuals.

We are grateful for the trust our clients place in us. In the years to come, we will continue to be by their side, especially if the natural process of aging takes a toll on their ability to make decisions in their own best interest.


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