This is the seventh of eight new articles by Olivia Mellan and Sherry Christie that continue the discussion on Your Client's Brain that began with Investment Advisor's February 2013 cover story—Double Think: Getting Past the Conflict in Your Clients' Two Brains—and a feature article—Second Thoughts: Making Better Decisions—in the March 2013 issue of IA.
"The older brain can remember a lot of things quite well, but aging is a vulnerability issue," says Brandman University psychology professor Paul Greenberg.
A recent study of nearly 750 older people in Scotland found that exercising several times a week protected the brain from age-related changes even better than social and mentally challenging activities. But even in healthy aging, Greenberg emphasized, "We have a general reduction in cognitive capacity and a specific decline in decision-making ability." Paradoxically, this decline is accompanied by increased confidence in our decision-making skills. These two developments often combine to make us more susceptible to insidious types of financial persuasion—the reason why scammers target older folks with deplorable success.
Researchers find that people make the best financial decisions in their mid-50s, as reported in a July AdvisorOne.com article by Michael Finke, a professor at Texas Tech University. Past that age, risk-adjusted investment returns tend to decline steadily. Advisors "need to acknowledge that cognitive decline is an important part of the retirement planning process," Finke wrote, and should plan for incapacity early in the client relationship, perhaps by requesting written authority to discuss the client's financial affairs with their designated attorney-in-fact if it should ever seem appropriate.
