Alert
02.06.2019

Recent publicity regarding 97-year-old Prince Phillip’s car accident has sparked a louder debate about whether older drivers should continue to be allowed behind the wheel. Financial advisors around the country face the moral equivalent of this scenario daily, with more and more investors suffering from cognitive decline or dementia that makes them no longer fit to drive the decisions about how they should be invested. The sense of urgency is of course heightened by the fact that frauds targeting the aging investor pool are becoming more frequent and sophisticated. 

Financial service professionals who interact with clients cannot change the demographics or the acts of fraudsters. If, however, the firm’s advisors are educated about the issues that they will confront and how to confront them, then they can mitigate and possibly prevent client harm. The elephant in the room here is that both advisors and clients may be loath to speak about aging issues. Below, we describe the problems that advisors face and offer simple solutions for them to break the ice with clients about planning for their future.

1. Some Facts On Cognitive Decline, Dementia And Age

People gain wisdom as they age, but that growth stops by the early 50s. After that, a slow decline in capacity is to be expected. In addition to normal cognitive decline, it is not unusual for dementia to manifest in the early 60s. At least 10% of people in their mid-60s are diagnosed with dementia and that number increases to 20% for those in their 80s. Another 30% of that 80 year old and up population suffers from “cognitive impairment not dementia,” which refers to individuals whose cognitive functioning is below normal but does not meet the criteria for dementia. Multiply these aged-based percentages by the number of Baby Boom investors and one can clearly see the implications for those advising clients over age 65.

2. Discussing Aging And Finances Is Not Easy For Anyone

Last year, a large financial institution conducted a survey asking older Americans and adult children about their family conversations regarding aging and financial planning. The results were eye-opening. According to the survey, almost 80% of parents and adult children described barriers hindering the discussion of finances and aging. Nearly 75% of those polled said that they tend to keep financial matters private. In other words, for most of those polled, family discussion about finances was seemingly taboo.

The problem is the obvious need for more investor education. According to the same survey, older Americans (perhaps unaware of the looming potential for cognitive decline) believed that talking about later life needs was a “low priority” at the moment. The number of older Americans who gave this response (57%) was significantly higher than any other reason given, including that they “just don’t talk about these things” (11%) or that it is “too difficult or depressing to talk about” (10%). These and other statistics prove that there is a paradox: even though senior investors do not feel a sense of urgency to protect themselves against financial fraud, they are the most likely to fall victim to financial scams.

3. How Financial Advisors Can Educate And Safeguard Investors

The most logical conduit for information to help protect investors against financial exploitation is the financial advisor. Here are several ideas that advisors can use to diplomatically engage the client base about this touchy topic:

  • Start now, do not wait. When the aging topic is raised well before any hint of a loss of capacity, it will be easier for the investor to confront.
  • Discuss the issues in person; if that is not an option, a phone conversation is the next best thing.
  • Use FINRA’s new rules designed to protect senior and vulnerable investors as the premise for the conversation. For example, Rule 4512 requires its members and more specifically advisors to make reasonable efforts to obtain the name and contact information from a client for a designated trusted contact person whenever a new account is opened or when updating account information. There is also a requirement to provide disclosure to the client defining how and under what circumstances the trusted contact person would be notified. Starting the conversation with an explanation of the industry’s increased focus on investor protection for those over 65 focuses the talk on the industry and new practices rather than the investor.
  • Similarly, use the firm’s compliance initiatives related to senior investors as a reason to discuss how firms are trying to safeguard client interests.
  • Use a discussion about long-term health care planning and insurance policies as a springboard for discussion about generational planning and trusted contacts.
  • With respect to all of this, keep in mind the life insurance axiom: “it is better to have it and not need it than to need it and not have it.”

The real takeaway here is for financial advisors to learn about investor protections for senior and vulnerable investors and to discuss them with their clients now. In our experience, the anxiety about having the discussion is likely to exceed any anxiety encountered during the conversation itself. After all, by having the talk, the financial advisor is helping the client manage their finances now and in the future.


Richard Szuch manages Bressler’s Senior and Vulnerable Investor Law Group. Jonathan Schwartz is a member of the Group and focuses his practice on business and securities litigation.

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