Seniors’ guidelines coming

Last month, the MFDA held its first seniors’ issues summit to update members on the changing landscape of working with older clients. The MFDA soon will publish a list of “best practices” guidelines for working with seniors on the MFDA website, compiled from the panel discussions at the Oct. 16 summit. “The guidelines will go up [on the website] sometime in 2014,” McGuinness says. “But they will just be guidelines. It really comes down to advisors. They are the ones who know their clients.”

The Investment Industry Regulatory Organization of Canada (IIROC), recently noted that the protection of seniors is one of the regulator’s strategic priorities — and that IIROC is dealing with a large volume of complaints in this area. In an email, Paul Riccardi, IIROC’s senior vice president for enforcement, member policy and registration, noted: “Investment advisors have an obligation to ‘know their client’ and to ensure, based on [the advisor’s] understanding of the client’s investment objectives, risk tolerance and time horizon, that their investment recommendations are suitable.

“Over the past fiscal year,” the email continues, “approximately 43% of all complaints [to IIROC] involved seniors, and about 30% dealt with seniors and suitability.”

As a result, financial advisors dealing with seniors may well need to conduct more exploration than they ordinarily do with younger clients. According to Barry LaValley, president of the Nanaimo, B.C.-based Retirement Lifestyle Center, who gave the MFDA summit’s closing address: “Canadians are very clear about what they are retiring from, but not at all clear what they are retiring to. Advisors need to know clients’ values and vision that will drive decisions going forward. They need to understand the health issues that affect them and their spouses. And they need to understand their views on money — not just their investment portfolios but what lets them sleep at night and what lets them enjoy life.”

Avoiding the difficult questions won’t work. Says Lee Anne Davies, president of Agenomics in Victoria: “Health changes will impact a client’s ability, both physically and cognitively, to make decisions and handle finances.”

Some advisors are uncomfortable discussing aging with clients, Davies adds, but advisors need to ensure all the pieces are in place — wills, powers of attorney (POA) and plans for housing. “As clients age, the risks are greater,” she says. “Don’t shy away from these discussions.”

Annual meetings with older clients are essential, says Douglas Melville, ombudsman and CEO of the Toronto-based Ombudsman for Banking Services and Investments (OBSI), who also attended the MFDA summit: “A lot can change in a senior’s life in one year that can have huge portfolio implications. Investment time horizons can change quickly later in life, when a client may have a greater need for liquidity.”

About half the complaints that OBSI receives involve seniors, Melville says. “Some are made by seniors; some by the people handling a senior’s estate,” he says. And many are about investment fraud. “Seniors are prime targets of investment fraudsters,” Melville adds. “One red flag advisors should be alert to is the client who writes a cheque to any investment firm other than the advisor’s firm. Another is a request to send money by wire. And, of course, there’s the promise of high returns for little risk.”

A client’s diminished mental capacity also means risk of liability for you and your firm, says McGuinness: “Advisors need to understand that the courts will hold them responsible for making unsuitable investments.”

Forgetfulness, confusion and personality changes may be signs of diminished mental capacity, cautions Patricia Kloepfer, vice president, compliance, and chief compliance officer with Investors Group Inc. in Winnipeg. Although privacy legislation prevents advisors from disclosing information about a client’s finances, she adds, there is nothing preventing you from contacting your client’s family and asking questions about the client’s health.

“Talk to your branch manager and compliance department,” Kloepfer says. “And document all interactions with the client. Take good notes with your observations of the client’s appearance, behaviour and mental state. Note the reasons for every transaction. Ask your branch manager to sit in on client meetings.”

Beware of wrongdoing or undue influence in the guise of support. A senior may want the help of another person in attending to finances, and might ask to open a joint bank account with a relative or friend, says Nathalie Clark, the Canadian Bankers Association’s (CBA) Toronto-based general counsel and corporate secretary: “A joint-account request immediately raises a red flag.”

If a bank suspects a client is under pressure from the person they would be sharing the account with, the bank may want to bring the matter to a third party’s attention; but, under the current privacy legislation, the bank cannot do so without the client’s consent. In 2007, the CBA proposed changes to privacy legislation that would allow banks to share client information with a third party if financial abuse is suspected. “This would facilitate our investigations,” Clark says. But, she adds, Bill C-12, which deals with the changes, has not been passed into law.

Clients with diminished mental capacity also may be vulnerable to financial abuse by anyone who holds their POA. Red flags in POA abuse include requests for large redemptions and purchases unsuitable to the client, such as cars for clients living in nursing homes.

“Clients also may be under the influence of a third party,” Kloepfer notes, “such as a friend who’s helping out — and receiving gifts. It’s a sensitive area, but the advisor should try to meet the client alone to ensure [the client] understands his situation.”    IE