30-40% of adults over 65 have the type of cognitive loss research regards as a normal consequence of age1

Age has a way of sneaking up on all of us, including our clients. Life experiences may make us wiser, but they don’t protect us from the natural decline of cognitive capabilities as we age. A proactive contingency plan can help protect clients from potential financial risks associated with a decline in cognitive health.

Proactive, positive and practical

Client conversations about aging often focus primarily on retirement income planning, overlooking the need to manage potential financial risks related to a decline in cognitive health. Advisors and clients may be hesitant to broach the subject, but ignorance is never bliss. Failing to put a plan in place leaves the client, their family, and your practice at greater risk.

Many people continue to handle their finances well into their later years, but we can all expect at least some challenges as we age. The hidden danger is that, while decision-making erodes, confidence levels can actually increase.2

Advisors who are mindful of the challenges investors face as they age can apply a strength-based approach to starting the conversation, building on the client’s own experience, wisdom, and family support. Taking a proactive, positive and practical approach can ease the conversation for both the client and the advisor. Clearly understand privacy laws and encourage clients to prepare documentation that outlines their plan to address potential cognitive impairment. Informed consent is an essential part of the planning relationship.

An inclusive approach

Approach the conversation with open and respectful dialogue, but also with intent. While it can be an uncomfortable topic to broach, advisors are often well placed to handle these conversations because they can be more objective than a family member might be.

Consider the following example scenario: Max is a life-long client who has always had a knack for math, is fiercely independent, and now approaching his 82nd birthday. Both of his children, Liz and Charlie, live nearby and see him at least weekly. They are also named as Max’s trusted contacts and are joint agents for durable power of attorney.

Liz: “I’m worried about Dad. He’s been having a tough time managing basic financial tasks that he’s done for years, like paying the bills. Charlie and I tried to talk with him about it, but he got very defensive. I think he’s afraid to acknowledge that he’s starting to need some help.”

Advisor: “I’m glad you reached out to me now, so that we can suggest a strategy to help him manage his financial life without any added stress. It’s possible that he may be starting to experience some cognitive decline. Fortunately we created a plan years ago, just in case he were to ever have difficulty managing financial decisions on his own and to protect him from any related risks. Let’s look at that now and see what steps we need to take.”

Approximately 15%-20% of adults over 65 develop mild cognitive impairment (MCI), which does impact everyday living, and is a precursor of Alzheimer’s3

In this case, Max and his advisor have already worked on a plan. Now it’s time to activate that plan, working with Max and his children to determine next steps. The very nature of long-term and multi-generational relationships calls for attention to the risks related to cognitive decline. It’s important to be direct, compassionate and supportive, emphasizing the goal of protecting the client’s interests. With a contingency plan already in place, there is a process to follow when the signs of cognitive decline appear. That plan may also include promptly informing the client’s trusted contacts (and attorney, if appropriate), and seeking an evaluation from Max’s physician.

An action plan for every client

None of us are invincible, nor should we be overwhelmed by fear of the unknown. And while everyone hopes that the statistics will not apply to their personal situation, hope is neither a plan nor a strategy. Advisors who guide their clients to proactively manage the potential risks of cognitive decline are helping them maintain control and achieve peace of mind.

A comprehensive checklist of financial and legal items is a critical tool to help protect clients from risks associated with cognitive decline. Review the list of services that will produce to-do lists in any of these areas:

  • Goal Setting in the context of their personal situation
  • Estate Planning including asset transfer and gifting strategies to carry on philanthropic goals
  • Budgeting to properly manage cash management
  • Tax Planning when they start to receive Social Security, pension benefits, 401(k) payouts or IRA income
  • Insurance Planning including long-term care insurance, life insurance (when to buy, where to purchase, how much is needed, etc.)
  • Health Care Planning such as special assistance for beyond what insurance will cover (for example, spousal care or special needs children)
  • Contingency Planning toward long-term care and other assistance needs in or outside the home; end-of-life plan (e.g., terminal illness, proverbial bus; natural end of life)

For more information about protecting clients from the risks related to cognitive decline, including additional hypothetical examples based on practice techniques and two modes of communication, read our conversation starters guide: Contingency Planning to Help Clients Avoid Age-Related Financial Risks.

2Keith Jacks Gamble, Patricia Boyle, Lei Yu, and David Bennett, “The Causes and Consequences of Financial Fraud Among Older Americans” Center for Retirement Research Working Paper 2014–13. Center for Retirement Research at Boston College in Association with Rush University Memory and Aging Project, November 2014.
3Alzheimer’s Association, 2019 Alzheimer’s Disease Facts and Figures, 2019