This is the third installment of our BCCP Summer Compliance Series.
Our country is getting older. The Baby Boomers (that great mass of people and wealth) are retiring and entering their golden years. Many advisors have concerns about diminished capacity in their clients. Advisors may have some notion of what diminished capacity is but many have no idea how to deal with clients that exhibit symptoms of diminished capacity.
First, let’s identify some of the symptoms of diminished capacity. These symptoms include:
Memory loss
Repeating questions or phrases
Asking others to repeat questions or instructions
Anger, irritability, or confusion
Forgetting previous decisions or actions
Difficulty with familiar tasks
Frequent calls to the office (often about the same thing)
Trouble with forms
Missing appointments
No single symptom indicates diminished capacity. Most often, people with diminished capacity will demonstrate more than one symptom in varying degrees. However, a client demonstrating a single red flag is enough to at least put you in a state of heightened awareness.
When a client shows signs of diminished capacity it is important that you take action quickly. Too many advisors have no idea what to do. Below are action steps you can do today to help your clients that may show signs of diminished capacity.
#1 – Educate Yourself and Staff
The very first thing you need to do is educate yourself and your staff regarding the symptoms of diminished capacity. The list above would be a great start. Share it with staff at your next meeting. Further your education by reading the SEC’s, FINRA’s, and NASAA’s resource pages for senior investors. These pages are intended for retail investors but also provide key insights for institutions.
#2 – Talk to Your Clients Early
Start talking to your clients now and put a process in place should you have concerns later. The first conversation can open so many avenues for help. Many states and local jurisdictions offer free or low-cost help for people experiencing diminished capacity and for their families. Seek out these resources and share them with your older clients and their families.
#3 – Secondary Contact Form
A Secondary Contact Form is a form signed by your client that allows you to contact a trusted family member, physician, or close friend. The form generally does not allow for the release of nonpublic, confidential information. It simply provides the contact information of trusted people for you to call to express your concerns. Encourage this secondary contact person to reach out to your client.
#4 – Third-party Information Authorization
The Third-party Authorization Form, when signed by your client, allows your firm to release account information to the person named on the form. This information may include statements, reports, and copies of account forms. This form does not allow the named person to transfer or withdraw funds, execute transactions, or make changes to account information. It allows only for general monitoring of account activity. This form is used only for trusted family members and other advisors (attorney, accountant, physician, etc.) to keep an eye on your client.
#5 – Copies of Legal Documents
Hopefully, your clients had the foresight to get legal counsel to draft power-of-attorney documents, a living trust, healthcare directives, and any other document to make these situations more manageable. Ask your clients for copies of appropriate documents. If your client has already shown signs of diminished capacity, however, it may be too late to get these documents put in place (since “sound mind” is a requirement to enter into an agreement).
As a side note, it would be wise to ask all your clients for their legal and estate planning documents. If they have no such documents, encourage them to seek the advice of a qualified attorney.
#6 – Have Clear Policies and Procedures
“Clear” policies and procedures does not mean “long” policies and procedures. Really, you only need to cover a few topics. First, discuss diminished capacity red flags. It is important that your staff know exactly what to look for. Second, give your staff guidelines on whom to contact internally regarding any client showing signs of diminished capacity. Lastly, give your compliance and supervisory personnel guidance for dealing with clients that show diminished capacity. You may also want to discuss Secondary Contact and/or Third-party Authorization, if you use these forms.
The issues surrounding diminished capacity are far bigger than what can possibly be covered in one blog post. Please take this information as a starting point. And please contact us if you need our assistance in this area. We'd be happy to help.
Dane Grouell is a Senior Advisory Board Member at BCCP and a 25-year veteran of the financial services industry. He has worked in executive management and compliance roles at various broker-dealers and investment advisors. Dane has previously been the Chief Compliance Officer of a $19 billion investment advisor and private fund manager and $80 million independent investment advisor. He has been responsible for nationwide supervision of national broker-dealers. Dane has done onsite audits of broker-dealers and investment advisors, registered new entities with the SEC and states, and responded to regulatory inquiries from nearly every regulatory body in the United States. He has rendered advice to firms domiciled in the United States, Europe, and Asia. Dane currently holds the Series 65 license and is a former Series 7, 24, 9, 10, and 52 holder.