The statistics are shocking: One in nine Americans age 65 or older suffers from dementia. Up to 80% of all cases of dementia are caused by Alzheimer's disease, and 5.4 million people in the U.S. are afflicted by it, according to the Alzheimer's Association. Alzheimer's is in fact the nation's biggest epidemic, Harvard Medical School affirms.
One of the earliest signs of cognitive impairment is a decline in financial skills. It is therefore critical for advisors to learn how to work with clients in the early stages of dementia to preclude legal and ethical problems. That's the message from Dave Paulsen, executive vice president and chief distribution officer of Transamerica, in an interview with ThinkAdvisor.
To help both FAs and their clients, Baltimore-based Transamerica collaborated with the Massachusetts Institute of Technology's MIT AgeLab to create "The Advisor's Guide to Financial Planning in the Shadow of Dementia," a framework for discussing finances and cognitive decline.
There is no way to prevent or cure Alzheimer's. And while the risk and rate at which Americans are being diagnosed with the disease is dropping, because of the huge demographic of aging baby boomers the number of people with it is projected to increase exponentially, according to the Commerce Department. Dartmouth Institute warns of "a tsunami of Alzheimer's."
Advocate organization Us Against Alzheimer's maintains that the disease is the most expensive in America — "the financial sinkhole of the 21st century."
ThinkAdvisor recently interviewed Paulsen, whose background is in variable annuity sales and distribution, about what financial advisors need to know when working with the growing population of investors who are showing signs of cognitive impairment, some likely to be their current clients. Here are excerpts from our conversation:
Is buying an annuity appropriate for someone in the mild first stage of Alzheimer's?
I can't make a blanket statement, but in some cases, yes. For people with dementia or Alzheimer's, it's very important that their third-party caregiver understand that the annuity solution provides guaranteed income. And there's also upside associated with variable annuities.
But variable annuities can be complicated and hard to understand even for those with normal cognition.
I wouldn't expect someone with cognitive decline to understand all the moving parts, but they have to understand the value that it brings: guaranteed income.
What modifications in approach should the financial advisor make in talking to a client with diminished cognitive capacity?
They may need to change the way they communicate by not only talking to them but by showing illustrations and, in general, speaking a little more slowly. They should ask closed-end questions, be patient and show that they understand.
Should the advisor address that she or he has been diagnosed with Alzheimer's or not bring it up?
Once a person [acknowledges] that they have dementia or are in the early stages of Alzheimer's, each one will have a different level of comfort as to how they want to share that information with their financial advisor. In any case, in no way should the advisor try to offer medical advice.
What should the FA do when they first notice signs of cognitive impairment in a client?
Make a recommendation that they see a professional to be sure they get the proper health care supervision.
Should the advisor notify their firm too?
Yes. They should also work with the back office and their broker-dealer, if they're a registered representative, to [clarify] the policies they have as an organization when it comes to dealing with people with cognitive decline.
Is it necessary that a third-party advocate attend advisor meetings with the client?
Yes. It's very important to make sure that the client is willing to have conversations with the advocate in the same room. Adding a family member or a caregiver — someone who may have power of attorney — not only helps protect the customer but also the advisor by making sure everyone understands what's taking place.
In such a meeting, there might be a tendency for the FA to speak past the client and to the advocate instead. Your thoughts?
Advisors are putting themselves in a poor position if they do that. The client is still their client, and they should continue to treat them as such. The third-party advocate is simply there to make sure that the proper decision-making takes place.
All of that should be put in writing, I assume.
