The investment industry has long been aware of the challenges posed by clients that suffer cognitive decline but a new report from the North American Securities Administrators Association (NASAA) examines how firms are grappling with advisors suffering the same issue.
NASAA’s working group of state and provincial regulators focused on senior investors turned its attention to issues of diminished capacity and cognitive impairment within the industry in an effort to develop guidance and possible resources for the industry.
The report details the results of the working group’s consultations with industry firms (both broker-dealers and investment advisory firms), compliance consultants, and others.
“Discussions with industry members and other regulators clearly indicate that firms are encountering financial professionals with diminished capacity or cognitive issues that stem from a variety of factors, including an aging workforce,” said Christopher Gerold, president of NASAA and chief of the New Jersey Bureau of Securities.
It reported that approximately 26% of the securities, commodities, and financial services sales agents are age 55 and older.
Along with aging, these impairments can stem from traumatic injuries, the side effects of medications, drug and alcohol addictions, dementia and other medical conditions.
“Industry members reported that diminished capacity may be temporary or a long-term condition and could occur at all ages,” the report said.
The report also noted that advisors suffering from diminished capacity raises “complex issues regarding providing effective service to the client and compliance with their duties under the securities laws.” These issues include meeting conduct standards and supervisory requirements.
In its report, NASAA sets out issues for industry firms to consider, such as whether their staff are trained to recognize the red flags of diminished capacity and cognitive impairment.
Other challenges that firms are having to deal with in this matter relate to legal, human resource, and disclosure issues.
So far, NASSAA notes that firms managing these kinds of situations “through communication, education, and succession planning.”
NASAA said that the consultations also found that the industry believes there’s a role for regulators to play in identifying the problem and setting guidelines for dealing with it.
In particular, it recommended that firms encourage or require “all financial professionals to establish a succession plan regardless of age.”
“Addressing financial professionals with cognitive impairment or diminished capacity requires sensitivity and respectfulness,” noted the report. “Each situation will present differently and firms will have varying resources to address these concerns.”
The working group that prepared the report operates under NASAA’s Committee on Senior Issues and Diminished Capacity, chaired by Deborah Gillis of the New Brunswick Financial & Consumer Services Commission (FCNB).