As close confidants of ageing wealth holders, investment managers are in a unique position to spot the early signs of cognitive decline
For wealth manager Austyn Smith, boosting support for clients with dementia has been a deeply personal mission. After his father was diagnosed with Alzheimer’s, Smith realised community support for people suffering from cognitive decline was limited, but wealth managers have a unique opportunity to help.
Smith implemented a robust client vulnerability policy in his UK-based company Austyn Smith Associates. This includes training staff to watch for and document signs of cognitive impairment in clients; insisting all those aged over 75 assign power of attorney (POA), and asking for permission to talk to clients’ children or other trusted individuals. Smith has also adopted the nine principles of the new Financial Vulnerability Taskforce (FVT) Charter, which form a commitment to safeguarding at-risk clients, including those with dementia.
He says his father’s situation should ideally have been dealt with much sooner: “But we didn’t have that level of understanding about dementia.
“Financial advisers are in a unique position to spot it and act on it early because of the deep conversations we have about finances and planning. We are not here to interfere with families, but our new processes mean we can be in the front line of protecting our clients and share what we have learned with them.”
Why cognitive decline is a big financial risk
Cognitive decline is one of the biggest risks facing clients across the finance industry, yet many wealth managers large and small are ill-prepared to help those affected.
According to 2020 data from Alzheimer’s Disease International, the global number of people with dementia will almost double every 20 years, to 78 million in 2030 and 139 million in 2050. Dementia can impair judgement and expose sufferers to financial risks such as fraud, lost accounts and poor decision-making. Many more people suffer mild cognitive impairment as they age, which can also leave them vulnerable.
Across the wealth management industry, companies are responding by developing ways to spot cognitive decline in clients and help them. But it is a sensitive and controversial area.
Tackling cognitive issues is particularly challenging for do-it-yourself investment platforms as they have no face-to-face interactions with clients, so may find it harder to spot issues. Some large US platforms such as Vanguard, Fidelity Investments and Charles Schwab are attempting to address this with sophisticated technology that monitors for signs of decline, including difficulty navigating security screens or resetting passwords frequently. In such cases, they might inform a family member.
Vanguard also checks client calls for words such as “confused” and “dementia” that might indicate a problem.
Spotting the early signs
Technology provider Comentis has developed a cognitive assessment engine to help financial firms spot reduced mental capacity. It says it aims to bring objectivity and consistency to cognitive assessment, with a clinical validity the industry has so far lacked. The firm has already partnered with major wealth managers such as St. James’s Place; adviser network Tenet; and back-office technology provider Intelliflo.
Comentis recognises that using technology to assess mental capacity is a sensitive topic. Though it has psychometric questions that aim to give advisers a deeper understanding of cognitive capacity, clients are not necessarily aware they are being assessed for it. This can make some advisers hesitant to use the technology. To address this, Comentis also provides a framework for handling client questions.
Smith says the UK financial regulator’s recent guidance on safeguarding vulnerable customers – which it plans to beef up with further proposals soon – helps make such assessments less awkward because advisers can tell clients that it is just a regulatory requirement.
He says none of his clients has been upset by his new policies. “The only problem you sometimes get is an 80-year-old who is as sharp as a pin, saying, ‘Don’t tell my children what I have,’” says Smith. “That’s fine as long as they remain sharp and you document the conversations.”
Robin Melley, managing director at UK-based Matrix Capital and member of the FVT steering group, says some wealth managers have made progress in handling cognitive impairment. But there is still much more to do, and they need to embed protection for vulnerable clients in daily business and processes rather than ticking a regulatory box.
“Technology plays a part and will develop. But there is an increased need for training in how to deal with vulnerable customers,” says Melley. “Those skills are difficult to replicate with technology, so intervention from a suitably trained adviser is necessary.”
How wealth managers can help
In the UK, Melley recommends training from the Society of Later Life Advisers, some of which is free and available to non-members, and from the Society of Trust and Estate Practitioners. Wealth managers can also use the FVT’s resource library. Firms could also train staff to be Dementia Friends, an initiative by the Alzheimer’s Society that investment platform Hargreaves Lansdown has adopted.
Beyond training, concrete steps to address cognitive decline can include consolidating assets to reduce complexity, pre-funding care costs, discussing financial matters with trusted individuals and planning when to hand over control of finances, which is the hardest choice for many.
Melley says a common misconception is that people with cognitive impairment can simply rely on next-of-kin to step in. However, in the UK at least, a next-of-kin cannot lawfully act on a client’s behalf unless they have a POA.
“Informal arrangements are fraught with difficulty, and increase the risk of financial abuse,” says Melley. “Finance professionals need systems and processes to ensure they are dealing with someone who has lawful authority.”
In addition to its technological processes, Fidelity has trained all customer teams to recognise signs of cognitive decline and escalate concerns. It also has a team dedicated to preventing and addressing abuse of elderly customers.
Fidelity provides guides and events to help customers and their families confront potential cognitive impairment as they age; and tackle difficult conversations around ageing. It also signposts to third parties such as estate planning, legal support and care coordination.
Meredith Stoddard, vice president of life events planning at Fidelity, says: “The key is for families to use the systematic controls, like trusted contact, POA and health care proxies, plus educational resources well before they need them. Fidelity has invested a lot in these systems, but the industry cannot take the place of a caring family member, friend or neighbour.”