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Recognizing early signs of diminished capacity in clients can prevent tragedy

Over the years that the elderly widow had been her client, Kimberly Kropp had developed a unique bond with her. Like most advisors, Kropp, the co-owner of Moylan-Kropp Financial Services in Omaha, Neb., kept a busy schedule. Even so, she always made time to drop by the woman’s home to go over her finances, balance her checkbook or provide some welcome company.

During those regular get-togethers, Kropp began to notice odd changes in her friend’s behavior — changes that seemed to go beyond normal, age-related forgetfulness. Her finances were unusually out of order. Her once tidy home was cluttered. She no longer seemed concerned about her appearance and had grown increasingly paranoid about irrational fears. Worried her friend might be suffering from the early stages of dementia, Kropp reached out to the woman’s three adult children. Rather than sharing Kropp’s concern, the children brushed off their mother’s behavior, chalking it up to old age.

It wasn’t until the woman was found hundreds of miles from home, disoriented and wandering down a country road, that her children realized Kropp’s initial fears about their mother’s mental health had proven true.

During the years following that incident, Kropp informed the adult children of two other clients that their parent could be showing signs of diminished mental capacity. Each time, nearly all the children initially denied the problem. Sadly, Kropp’s concerns turned out to be true for each of those families, too.

Upcoming Aging Boom Could Boost Diminished Capacity Cases

In 2011, the first baby boomers turned 65. By 2029, when that entire generation will be 65 or older, they will make up nearly 20 percent of the population, according to a 2014 U.S. Census Bureau population report. Coinciding with that increase, the number of Americans with Alzheimer’s (just one of the causes of diminished capacity) is predicted to climb from its 2015 total of 5.3 million to 7.8 million in 2030 and to 9.5 million in 2035, according to the Alzheimer’s Association.

The impending aging boom means financial professionals will need to be even more vigilant about observing their retirement-aged clients’ behavior and acknowledging they might have a problem when something seems out of the ordinary.

“As financial professionals, we see our clients in a different light,” Kropp said. “We love them, but we’re far enough away from being family that we can see them differently. We’re not in denial.”

Your unique relationship with your older clients could put you in the position to be first to notice a need for help. By voicing your concerns with their family and others who can provide assistance, you could be heading off a severe financial loss or preventing them from becoming a target of financial abuse. Just as important, by identifying and reporting someone with potential diminished capacity, you could also be protecting your firm from accusations of mismanaging clients’ money or not adequately preserving or protecting their assets.

Heed the Warning Signs

Early warning signs of encroaching diminished capacity are often subtle and difficult to distinguish, even with clients you meet with regularly. If you suspect someone may be showing indications of diminished capacity, pay close attention to their decision-making abilities and don’t be misled by their friendly nature or willingness to cooperate.

Mental capacity can fluctuate based on many factors, including the task at hand, time of day and energy level. A client who doesn’t display unusual behavior while in your office might call you the next day confused about financial arrangements or when they might receive a distribution check. Memory loss or confusion can be caused by many factors, such as side effects from medication, lack of sleep, inadequate diet or stress. Or they might signal the onset of something more serious.

When meeting with older clients, keep an eye out for these red flags. Remember, changes can come on gradually and may seem inconsequential at first. They may include:

  • Inability to process simple concepts
  • Memory loss
  • Difficulty speaking or communicating
  • Inability to understand consequences of decisions
  • Decisions that are inconsistent with long-term goals or commitments
  • Refusal to follow appropriate investment advice, especially when it’s consistent with previously stated goals
  • Fear that funds are missing from their account, even when reviews show no money movements have occurred
  • Disorientation with surroundings
  • An uncharacteristic unkempt appearance

In one meeting with an elderly couple, Kropp noticed the wife persistently rummaged through her purse but wasn’t searching for anything in particular. She also didn’t contribute to the discussion, allowing her husband to answer questions for her. That unusual behavior was one of the early warning signs that prompted Kropp to contact the woman’s children with concerns for her well-being.

“I feel it’s my responsibility if I notice things to reach out to you,” Kropp said. “If I was in your shoes, I’d want someone to do the same for me.”

Recognizing Elder Financial Abuse

Financial scams targeting older clients have become so prevalent, the Department of Health and Human Services dubbed them “the crime of the 21st century.” While this type of crime can impact healthy clients, those with diminished mental capacity are much more susceptible.

As a financial professional, you should be particularly aware of two categories of financial crimes — desperation and predation. Crimes of desperation are typically those in which a family member or friend is so badly in need of money they will take advantage of a vulnerable person to get what they’re after. The perpetrator may even justify their actions in these cases by convincing themselves they’re owed the money as payment for care they might be providing, no matter how minimal that care might actually be.

Crimes of predation occur when a predator builds trust with an older person with the intent of committing financial abuse later. This can include tricking someone to sign over money or property. Desperation and predation offenders will often deceive, coerce, intimidate, emotionally abuse or make empty promises of lifelong care. They will usually try to isolate the victim from friends and family to prevent others from getting information that could tip them off to the scam.

Statistics from the National Committee for the Prevention of Elder Abuse show:

  • Women are twice as likely to be victims of financial abuse.
  • Most victims are between 80 and 89, live alone or require some help with health care or home maintenance.
  • Nearly 60 percent of perpetrators were males between ages 30 and 59.
  • Victims were particularly vulnerable during the holiday season, when the need for cash was higher.

These warning signs could signal possible financial abuse:

  • The client gives power of attorney to someone who appears inappropriate.
  • There are indications the client does not have control over or access to their money.
  • The client’s mailing address has been changed to an unfamiliar or unexplained address.
  • Changes to the will are being made when the person is incapacitated.
  • The client appears suddenly isolated from friends and family.
  • There are unexplained or unusual disbursements from the client’s account.
  • A new individual is suddenly involved in the client’s financial affairs.

With thousands of people turning 65 each day, you need to be prepared to meet the aging population boom head on. Many of your older clients will not be aware their mental capacity is diminishing. Even if they do, they may try to hide it from you and anyone else close to them. By developing close ties to your older clients, you and your staff will be in a unique position to recognize the early warnings of diminished capacity and elder abuse and possibly prevent a costly tragedy.

“I’m the type of person who looks at clients like family,” Kropp said. “That’s an important part of our job. That’s the value we add. That’s what this is all about. I don’t just view myself as a financial professional. I view myself as a financial professional and a life coach.”