Finke: Lack of Fiduciary Protection for Elderly Is ‘Insane’

Without fiduciary protections, Texas Tech professor Michael Finke sees a "predatory financial services industry" that feeds on the elderly as a stark reality.

During a presentation on Thursday at CFA Institute's Wealth Management 2015 conference in New Orleans – also webcast online – Finke discussed planning for retirement living and some of the financial implications of aging.

"In the United States, we have a buyer-beware marketplace for products that are very often sold to older consumers," said Finke, professor and director of retirement planning and living in the personal financial planning department at Texas Tech University and a contributing editor to Research magazine, which is affiliated with ThinkAdvisor.

"This is insane," he continued. "It's insane that we allow people to sell products that are not necessarily in the best interest and hold themselves out as experts in the financial services industry to people who in their 80s and 90s without any fear that they are going to get sued."

Finke called for change, speaking passionately to the crowd at the chartered financial analyst gathering.

"One of the things that we need to do is protect those who are really least able to monitor those in the financial services industry and decide what is and what isn't an appropriate product," he said. "We need to take that burden off their shoulders; otherwise we're going to end up with a predatory financial services industry that essentially caters to those who are older."

Finke believes the market would be better served "by having some sort of fiduciary protections," especially for older consumers.

"I don't think you can have a buyer beware marketplace and end up with good outcomes, especially when people are in later life, you know that they are going to experience cognitive limitations," Finke said.

Finke presented some startling facts during his presentation regarding dementia and cognitive impairment among retirees — and called on advisors to make planning for cognitive and physical changes in old age a part of retirement planning.

"As we get older, our ability to make complex financial decisions is going to decline," Finke said. "So we need to plan for that. We need to recognize that it's going to happen and we need to make decisions that reduce the potential loss from that decline occurring."

While the rate of dementia among 60- to 64-year-olds is 0.8%, Finke points to data that shows that rate doubles every five years. The rate of dementia among 80- to 84-year-olds increases to 12.8% and among the 85-and-older crowd, 30% are experiencing clinical dementia.

Finke defines clinical dementia as "seriously impaired cognitive decision making."

"By the time we hit age 90 78% are either experiencing dementia or some kind of serious cognitive impairment," Finke stated.

Finke also pointed to another study that found that 60% of those that are experiencing clinical dementia are still managing their own money. Only 30% of those experiencing clinical dementia reported delegating their money management to someone else.

"If you're experiencing clinical dementia, you do not want to be managing your own money without assistance," he said, adding, "Have they made a plan early on in retirement to have somebody who is serving as a fiduciary on their behalf? Or is it the person most convenient to them, or is it the person that they trust the most during the time when they're experiencing clinical dementia?"

This is why Finke sees the need to include congnitive impairment planning as part of the retirement planning process.

"What we see here are grave potential problems that actually do show up in the data," he said. "Among those who experience a large decline in cognitive ability, what we see is a commensurate decline in wealth. So, in fact, it may not be that the biggest risk to a retiree's portfolio is a bear market. It may be that the biggest risk to a retiree's portfolio is a decline in cognitive ability without a plan and without an awareness that it's occurring."

–Have you read Finke's The Evolving Idea of Retirement in the March issue of Research magazine on ThinkAdvisor?

Finke: Lack of Fiduciary Protection for Elderly Is ‘Insane’

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