Download Are you able to identify a client with cognitive decline?

Are you able to identify a client with cognitive
decline?
10 May 2016
As clients age, issues of cognitive decline emerge, which can lead to them making poor financial decisions.
As there are legal consequences for advisers who provide what is later deemed to be inappropriate advice
to such clients, here’s how you can better protect yourself and your client.
Australia’s elderly population is set to double over the next 25 years, which means issues surrounding
cognitive decline will inevitably rise.
“Advisers need to be aware of cognitive decline pitfalls so that they don’t fall into a trap” says Dr John
Teale, Senior Lecturer in Financial Planning at the University of New England.
“ASIC might throw the person out of business forever. Then you can be sure civil action will follow.”
Learn how to identify cognitive decline
To better protect yourself, you first need to become adept at identifying cognitive decline.
“Financial advisers aren’t psychiatrists,” says Dr Teale, who worked for more than 40 years in the
financial advice industry.
“But red flags come up and an experienced adviser will pick up on them, such as missed appointments or
repetitive questions.”
In his article in the Financial Planning Research Journal, Dr Teale recommends unobtrusively asking clients
you’re concerned about three scenario-based financial questions to gauge whether they suffer from a lack
of financial capacity due to ageing.
1. Suppose you had $100 in a savings account which paid an interest rate of two per cent per year
(calculated at the end of the year). After five years, how much do you think you would have in the
account if you left the money to grow?
1. More than $102
2. Exactly $102
3. Less than $102
4. Do not know
2. Imagining that the interest rate on your savings account was one per cent per year and the inflation
rate was two per cent per year. With the money in this account, after one year, would you be able to
buy?
1. More than today
2. Exactly the same as today
3. Less than today
4. Do not know
3. Buying a single company stock usually provides a safer return than a stock in a mutual fund. Is this
statement:
1. True
2. False
3. Do not know.
“But you’ll still have to determine whether a person is having cognitive difficulty, or just a financial illiteracy
issue,” he says.
Establish a protocol
Establishing a set step-by-step protocol is important as it avoids confusion and minimises inconsistent
dealings, which in turn reduces the possibility of legal transgressions, says Dr Teale.
“If advisers can show a sequence of events that they always follow and cover, they’ve got a much better
chance of surviving these issues – don’t forget, we’re in a very litigious society,” he says.
Take meticulous notes
Your protocol will include keeping meticulous notes of all dealings with your client, including your
comparisons of products on the market. If an issue arises and it reaches the courts, Dr Teale says a
determination could depend on the adviser’s notes alone.
“Have your due process documented – the courts like that” he adds.
Train your staff
Ensure your staff are aware of your protocol, and have also gone through cognitive decline awareness
training, adds Dr Teale.
“Having warning bells picked up by good staff is very important,” he says.
“They could say to the adviser: ‘Ms So-And-So is here to see you. Look, she’s been asking all these
repetitive questions. I think she’s having some issues’.”
Duty of care to your client
Finally, let’s not forget a critical issue surrounding cognitive decline – your duty of care to protect your
client while they’re in a vulnerable mental state.
“It’s a big responsibility and there is a human side,” says Dr Teale.
Advisers need to be aware that the duties are really strict and that if they were found by a court to have sold
a product, recognising that there was a cognitive issue, they would be penalised, explains Dr Teale.
Guardianship orders also present challenges for advisers, as they can result in instructions that conflict with
that of the client’s, possibly affecting their relationship with their adviser in the process.
“And if the guardian has an enduring power of attorney, they can do anything they want – even drain an
account,” Dr Teale says.
“This is where a financial adviser should be monitoring and ensuring affairs are conducted above board.
“If an adviser suspects money is being drained, they can do something about it by drawing it to the
attention of relatives, trusted family friends or a lawyer.”
Having a close relationship with your clients and an understanding of their goals and wishes will ultimately
make it easier to gauge and act on their best interests.
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