Mental capacity: the advisor’s role

The experience gave Findlay a keen appreciation of the difficulties faced by advisors who find themselves having to make similar calls to clients’ family members.

“I had trouble hearing it from a community social worker who actually had done an assessment,” Findlay says. “So, I can’t imagine a non-psychology professional [such as an advisor] approaching me. That would have been a tough conversation.”

Findlay’s experience is likely to resonate with many advisors who have encountered declining mental capacity in their clients more often than in the past. Findlay, who has been an advisor since the 1970s, is an active member of the Financial Advisors Association of Canada (a.k.a. Advocis) and an instructor who provides continuing education for advisors. He offers his perspective on the issue: a combination of demographics, declining guaranteed pensions and rising regulatory oversight are creating a new – and challenging – reality for advisors, who must assess an older client’s mental capacity, usually without clear guidelines.

But cognitive decline can be difficult to spot, even for medical experts. “One minute clients may be clear, but four or five hours later, they are not capable [to deal with their finances],” Findlay says.

In a world of rapidly greying client rosters, advisors have little or no training to deal with the capacity issues that may develop for these older clients. The potential result is increased professional liability, such as hefty fines, and notification obligations imposed by privacy legislation. And while some provinces are gearing up to provide new assistance and support for advisors facing such challenges, additional regulatory requirements aimed at protecting clients from financial abuse also may be included.

Compounding the problem is the relentless upward spiral in the complexity and sheer numbers of financial products and investment strategies available. That issue can be challenging for clients of any age, but special sensitivities can be created for advisors who are dealing with clients who may be experiencing cognitive issues of which those clients may not be aware.

Notes Paul Trudelle, an estates specialist with law firm Hull & Hull LLP in Toronto: “One of the biggest fears of older people is losing capacity or being challenged on what they are able to do. They’ve been making financial decisions all their lives, and to have [someone] suggest they are not able to do so [as a result of aging] can be offensive.”

So, how can you approach such a sensitive matter? Findlay and Trudelle both note that many people struggling with memory issues, potentially a signal of cognitive decline, can become adept at masking their confusion. They may nod in agreement or offer only “yes” and “no” answers. Still, there are ways to identify cognitive problems.

“There are some early red flags,” Findlay says. “People who previously understood the product they owned or previously remembered and had good recall about prior meetings suddenly seem confused. They don’t seem to recall information as they once did.”

That’s common among older clients, Findlay says, but you must nevertheless become sensitized to the issue and sharpen your observational practices to help protect these clients should their mental capacity decline beyond their ability to manage their own affairs properly.

Findlay and Trudelle both recommend asking questions that are open-ended, so you can assess clients’ understanding.

“Rather than telling people everything, sometimes ask questions to see if [a client] has the ability to answer,” Findlay says. “For example, ‘Do you remember who your beneficiary is in this plan?’ These are questions [clients] should know the answers to. [If] I haven’t seen [a client] for a year, I just begin with that basic question.”

Paul Bourbonniere, partner at Polson Bourbonniere Derby Wealth Management in Markham, Ont., also has noticed that age and capacity have become an issue in his practice. “People are living a lot longer – into their late 80s and early 90s,” he says. “They sometimes surprise themselves that they are still around. And by your early 90s, you have probably suffered some decline.”

Bourbonniere also suggests a series of open-ended questions to test memory and understanding related to past meetings. However, he cautions against assuming all confusion or lack of engagement is linked to mental decline. Hearing loss, for example, can be an issue in clients who otherwise have no loss of capacity. Addressing that issue properly can transform your client’s relationship with you.

For other situations, Bourbonniere offers some pragmatic advice. Try to ensure you have a network of experts in place – people you can call on to ask for advice on issues such as whether a medical assessment of capacity is needed or if long-term care options should be considered. In addition, he says, take action, but tread carefully.

“Don’t press the panic button,” he says, when it appears there may be some difficulty with recent memory or other signs of decline. If you do see something out of the ordinary, formally note the change in your file so you can follow up during the next meeting, Bourbonniere says, and perhaps move up that meeting – to three months from six months, for example.

If the issues seem more pressing, he says, calling the person who holds the client’s power of attorney (POA) or a trusted family member may be prudent, to ask if there are any developments with the client’s health of which you need to be aware.

Ensuring that you know who the backup caregivers are and that they are available is crucial. The first place to start is with the person holding your client’s POA.

“Ask [clients] if they have a POA and who it is,” Findlay says. “That tells you a lot about who they trust when they are of sober mind. Before they began having issues, who in their family or circle have they appointed to take care of their finances in the future? That name and number should be in the client’s file. We should know who to call if things seem to become confusing.”

Still, the growing incidence of struggling older clients probably means that more than these informal techniques is required. Researchers and financial services regulators are taking note of the need for internal guidance within advisors’ firms and the rising need for training and guidelines for advisors to follow when they suspect mental capacity issues and financial abuse.

Protection for advisors is on the regulatory agenda as well. Among some of the recommendations made by the Vancouver-based Canadian Centre for Elder Law (CCEL) and the Toronto-based Canadian Foundation for the Advancement of Investor Rights (a.k.a. FAIR Canada) — and accepted by the Ontario Securities Commission in March — is the creation of a legislated “safe harbour” to shield advisors from potential liability under privacy laws, provided they are acting within certain parameters.

Findlay supports that approach. “I think creating a safe harbour would be the appropriate thing,” he says, “so advisors can at least explore conversations with family members without worrying about a huge backlash [under privacy legislation].”

Bourbonniere offers a further caution, noting that family members can be part of the problem. Some people may not have a parent’s best interests at heart or could be manipulative.

Financial services firms are stepping up their internal efforts for change without waiting for new regulations, notes Laura Tamblyn Watts, a lawyer and national director of law, policy and research with CARP (formerly known as the Canadian Association of Retired People). The CCEL and Fair Canada released their Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence and Diminished Mental Capacity, based on a survey conducted by the two organizations, in November 2017. The report, cowritten by Tamblyn Watts, formerly of the CCEL, and  Marian Passmore of FAIR Canada, indicates that the investment industry is deeply concerned about the issue of mental capacity and that firms are open to guidance and further regulation.

Says Tamblyn Watts: “Financial services firms overwhelmingly stated: ‘Yes, we are concerned; Yes, we want a system; No, we don’t really have one in place; Yes, we would implement something’ – including investing money in the implementation, as long as regulators tell [the investment companies] what they’re supposed to do.

“What you’re talking about,” she adds, “is the creation of a conduct protocol.”

Among the firms moving ahead on this front is Vancouver City Savings Credit Union, which has been addressing the issue of mental capacity in older clients for some time and has posted advice and observations on the issue on its website (vancity.com/AboutVancity/News/Backgrounders/CombatingFinancialAbuse/). Initiatives include: workshops on financial wellness and financial abuse for seniors; “tech and tea” sessions for seniors who require help in using digital platforms; and mobile account managers with special training in issues related to aging.

For now, though, advisors are on the front lines – with little support – in dealing with the affairs of an aging client. And the client may have a long-term relationship with the advisor that both parties value greatly.

Notes Trudelle: “It’s a very fine line that advisors have to walk, unfortunately.”

This is the second part in a two-part series on working with clients who have declining mental capacity. The first instalment appeared in the April issue of Investment Executive.

UNDER THE INFLUENCE

Elderly clients, especially those experiencing cognitive decline, can be vulnerable to undue influence – a situation in which a client is taken advantage of by someone who is acting contrary to the client’s best interests.

For example, a relative, such as an adult child or grandchild, can pressure an elderly client into making financial transactions or changes to his or her will that would benefit the relative but go against the client’s sincere wishes.

How can you tell if a client is experiencing undue influence? The following tips and red flags to watch for are adapted from Undue Influence: Recognition/Prevention, which was prepared by the Notary Foundation Inc. and the British Columbia Law Institute (BCLI) for legal professionals who draft wills for their clients.

– Be aware of a client’s physical, psychological and behavioural aspects that could have an adverse impact on decision-making, such as:

– dependence on a beneficiary due to problems with sight, hearing, mobility, speech, illness or literacy;

– signs of physical neglect or self-neglect, including emaciation, inappropriate clothing, bruises and untreated injuries;

– a state of shock following stressful events, such as death of a close friend or relative;

– non-specific issues, such as loneliness, sexual bargaining and end-of-life concerns;

– cultural influences or conditioned responses. For example, subservience to traditional authority in an extended family or yielding to pressure for fear of revealing family conflicts that could lead to loss of face in the client’s community;

– impaired mental function as a result of a psychiatric condition or a non-psychiatric cause, including trauma or stroke.

– Signs that a client may be struggling in these areas include:

– sudden onset of confusion;

– short-term memory problems;

– disorientation;

– difficulty in handling finances;

– signs of depression, such as irritability, agitation, difficulty with decisions, sad expression, bowed head and general lethargy;

– delusional thinking;

– extreme sense of well-being;

– continuous speech;

– inability to concentrate, poor judgment;

– apparent apprehension, worry or distress;

– intoxication or other signs of substance abuse;

– inability to answer open-ended questions.

For more information, see Recommended Practices for Wills Practitioners Relating to Potential Undue Influence: A Guide, which can be found on the BCLI’s website: bcli.org.