Helping aging clients in the new compliance regime

Regulators and institutions are increasingly concerned about issues such as mental capacity and elder financial abuse, Tamblyn Watts said. She added that financial abuse refers not only to fraud and scams aimed at the general population, but also to abuse that can occur within families, especially when wealth is transferred across generations. “That interplay of family and friends and money” can leave elderly clients vulnerable, she said.

In an interview with Investment Executive, Tamblyn Watts discussed the new regulations designed to protect both elderly and vulnerable clients. (This interview has been edited and condensed.)

Q: The Canadian Securities Administrators (CSA) codified rule changes for the protection of both older and vulnerable clients, effective Jan. 1, 2022. Are they helping?

Tamblyn Watts: One of the changes has been the development of the “trusted contact person” (TCP), which is not really a new idea. Some organizations already were naming TCPs as part of their general know-your-client principles, but that practice has now been more formalized. It’s the common-sense answer to “What if we can’t get a hold of you?” That could mean a client is on a cruise or it could mean you’re worried about them because there’s been strange activity in their account.

There’s also the idea of a temporary hold on a client’s account as a protective measure, which has become more comfortable to consider in relation to certain types of fraud alerts or scam alerts. But financial advisors and firms have been “damned if you do, damned if you don’t” in many cases. If they report suspected financial abuse or put holds on accounts, they can get into trouble for not following their client’s instructions, which could lead to complaints against them.

The reporting part was really helped by having that TCP, but we do not yet have what we call “legal safe harbour” for the issue of putting holds. Of course, that’s not something the regulators can do and it will come more from the courts. There’s now development of protocols to make sure that it’s clear when a person is supposed to report issues and who they’re supposed to report to, meaning less risk and anxiety for well-intentioned advisors. But it’s not yet solved.

Q: How can advisors best explain these new rules and any new procedures to older clients and their families? What if they encounter resistance?

Tamblyn Watts: The first thing to do is take your time. We financial professionals speak very fast and use a lot of acronyms.

It’s critically important to orient the client to what’s going on. Prepare to have longer meetings that are conversational and exploratory. Also, know that you may be more uncomfortable talking about dementia and elder abuse than they are. What we need to do is normalize those conversations.

For TCPs, specifically, explain that it’s not age-based. This is for everyone. Appeal to people’s common sense by asking, “If something comes up and I can’t get a hold of you, who would you like me to get a hold of, if anyone?” Also say: “I will always try to talk to you directly, but if I can’t, is there someone you trust?” And this is the bit that you have to actually say: “We know that two-thirds of elder abuse, including financial abuse, is perpetrated by family members and friends. We never, ever want to think about our families doing something like that, but we all know people have different opinions about money.” And then the advisor can share a personal story about how complex that can be or, alternatively, invite the client to share and reflect.

A real challenge comes where a client has nobody. A professional trust and estates firm is an option for power of attorney (PoA). When the client is thinking about a TCP, they may want it to be that financial institution. But it may be actually better to just have a trusted human being instead of a large trust and estates company. An everyday person could say, “Oh, they’ve just gone to Florida. Call this landline instead.”

Or, as a last resort and with discretion, steps could include reaching out to that human TCP and saying, “We’re worried about the health and well-being of the client.”

Most people think this makes sense, but the client doesn’t have to name a TCP.

Nonetheless, the financial advisor should come back to it; it’s part of the annual process. Whether to reopen the conversation or because folks clients would rely on can die, move away or get sick, it should be something you check in on.

Q: What are the risks if an advisor hasn’t yet followed the TCP guidance and finds that an elderly, vulnerable client is facing capacity difficulties or abuse? Can they do anything?

Tamblyn Watts: For advisors who have not been active in getting clients to name a TCP, or where a client doesn’t want to have a TCP, there can be significant risk to the relationship if capacity issues or financial abuse come up, for example. You would obviously try to contact your client first, but where that’s not possible, there’s risk of real shock.

Privacy legislation does allow disclosure of some things such as financial abuse to the police and to individuals such as “next of kin,” “part of government” or “an authorized representative,” but none of that is defined and it is really unhelpful. The legislation also doesn’t indicate anything that would allow you to talk about mental capacity challenges. So, advisors can get into that “damned if you do, damned if you don’t” situation again.

Reporting to the wrong person or without your client’s consent, for example, can have negative impacts. An advisor may be putting that person in a situation where there’s increased risk of abuse and neglect because, as I said, two-thirds of the time a family member or someone close is the abuser.

Outside of proactively naming a TCP, it’s important that we become familiar with community-based resources. Advisors must learn who to report to and who not to report to in cases of, at least, suspected abuse or neglect. It does require an understanding of what’s happening in each province and territory, because that’s not an answer Bay Street can give if you live in Calgary or Montreal, for instance. So far, regulators like the Ontario Securities Commission and Autorité des marchés financiers have shown profound leadership in ensuring that these issues are integrated into a senior’s strategy, offering guidance and good frameworks for advisors.

Q: It’s generally advised that advisors, TCPs and PoAs are separate individuals. Why is that a good idea?

Tamblyn Watts: Advisors’ clients should definitely think very carefully about whether they actually choose to appoint the same person as their TCP and their PoA. You don’t get that sober, second thought, and there are no checks and balances. When PoA issues aren’t just an issue of a misunderstanding or a lack of clarity about the PoA role, and where the advisor actually thinks there’s some type of abuse or neglect, there could be a role for the TCP to check in to make sure things are OK with the client.

Q: What supports are available for an advisor if the relationship between the TCP and the PoA becomes strained?

Tamblyn Watts: Where the relationship between the two individuals becomes tricky, firm support will depend on your practice. If you’re in a large practice, your chances of having compliance and escalated risk support is going to be high — so, you can bump it to legal. Many small advisors, including sole practitioners, don’t have those wraparound supports. They’ll need adequate tools in order to manage that situation, including a way to seek legal advice. But it starts with having a good understanding with your client about what they would want in any situation. Talk it through ahead of time rather than treating TCP assignment as just another tick mark on a page or another signature in the corner.