The compromised client

Jack often talks about his stepdaughter. In the Richmond Hill, Ontario, long-term care facility where he lives, residents often chat about their families, but Jack’s repetitive stories focus on his suspicions—he thinks his stepdaughter is slowly withdrawing his money from their joint bank account. Familiar with his accusations, his nurses chalk the tales up to dementia.

More than half a million Canadians today suffer from Alzheimer’s Disease, the most common form of dementia, and 71,000 are under the age of 65. They are losing their memory, struggle to communicate or reason and show signs of personality changes. In the next 25 years, more than one million people will be affected, meaning that Jack could become your client.

Working with a cognitively impaired client poses unique and often complex challenges for financial advisors. Dementia clients can show signs of paranoia about finances—even to the point of storing cash in boxes at home. Not only must advisors show special care in convincing them to use formal accounts, but they must also manage privacy and communication on a whole new level, conscious of competing interests—especially if they share accounts with an adult child—conflicts of interest and ethical and legal quagmires.

The Power of Attorney When Ken McNaughton’s client, a widower with four adult children, was diagnosed with dementia, the client delegated power of attorney rights to one daughter who sat in on meetings with McNaughton, a CFP at ZLC Financial Group and the president of the Estate Planning Council of Victoria.

“I was conscious that I had four adult children waiting in the wings to receive significant inheritances,” he explained. “I had to make sure the daughter understood that my first priority was to ensure that Dad had adequate income, that he was my primary client dependent on me for guidance and advice.”

A power of attorney authorizes someone to act on your behalf, to manage all of your property and health-related decisions in case of mental of physical incapacity. The document is valid only as long as the person is mentally sound when it is drafted, which means today is the day to speak to clients about drawing one up—even if it won’t be needed for a long time. As with a will, without the power of attorney document, families may be unable to legally deal with their parents’ affairs and may watch their parents’ entire estate get tied up in government knots.

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“The first thing we do is make sure our clients have a power of attorney and will in place,” says Judith Cane, a fee-only advisor and owner of Antara Financial in Ottawa. “The power of attorney document justifies the client’s decisions and encourages open communication with the children.

When one of Cane’s clients with Alzheimer’s died, the surviving spouse designated two of three children to act as power of attorney. “It’s none of the kids’ business to know the exact amount of money involved, but now the kids know what the mother’s wishes are because it’s clearly outlined in the document. In tense situations, they can refer to the document and know this is what Mom wanted.” In this case, the power of attorney document also included details about the long-term care home and nursing care the mother wanted.

Transparency and protection While the power of attorney document promotes transparency among family members, it also helps advisors protect their client’s privacy, an issue where there are multiple and curious heirs. “If the power of attorney is being exercised, I must disclose everything to the person holding it, but if other family members question me, I will refuse to disclose,” says McNaughton. “If Dad didn’t want you to know the details of the beneficiary designations while he still had his wits about him, then I am going to respect that.”

The point is to keep a steadfast focus on the client, says Rick McKenster, a financial advisor and president of Richard McKenster Financial Planning, based in Calgary and Halifax. He’s been in the business for 37 years and more than two- thirds of his clients are above age 50. Helping them draft their power of attorney documents is part of early meetings he has with them.

McKenster had a case where he noticed the son of the client trying to take a larger role in making financial decisions for his elderly parent that were inconsistent with what McKenster and the client had done up to that point. Having a power of attorney in place reduces the risk of elder financial abuse.

“If the power of attorney’s request takes investments outside the white line, making them inconsistent with the client’s risk profile, we make a note of it,” he says. “It is a compliance liability. If I have a concern, I engage the product manufacturer’s legal counsel and ask them to address it.”

When it comes to clients with dementia, advisors can lose their way and forget who the client is, something McKenster sees as an indefensible risk. If, he faces competing interests, he consults his team of three licensed staff as a compliance sounding board, asking for their help in making the right judgment and maintaining a high level of integrity. Is the request in the client’s best interest, or the power of attorney’s? Does the request create a big commission for the firm, but have no value to the client? “The sounding board helps you stay within the white lines. The advisor has to be listening.”

Cane’s own personal situation reinforces the importance of having a power of attorney in place. She and her brother were both designated as their father’s power of attorney soon after he was diagnosed with Alzheimer’s, but while he was still capable of signing the document. “Without the POA it would have been difficult to deal with banks and doctors,” she said. “I wouldn’t want someone who didn’t know me making important decisions for me.”

Sheila Avari is a Markham, Ont.-based freelance journalist.

(11/16/10)