Roger Verboon still remembers one of his first assignments as the practice management consultant in charge of advisor continuity and succession planning.
An 85-year-old financial professional in California was displaying warning signs of diminished mental capacity. Verboon was given the unenviable task of calling him to determine if he had made retirement plans.
“Not long after that call, his daughter called and said she had concerns about her dad,” said Verboon, who is now director of succession and acquisition planning at Securities America. “He was going to lunch and wandering off. We took it to supervision and said, ‘We need to do something about this.’”
Ultimately, Securities America worked with the financial professional to sell his practice before his condition posed a threat to his clients’ assets. He passed away two years later.
Over the nearly two decades since then, the average age of financial professionals across all distribution channels has steadily crept up to 51 in 2017, according to Cerulli Associates. That same survey revealed 43 percent of all financial professionals are older than 55. In the independent channel, the average age is 56.
As those numbers climb, so does the risk that more financial professional will develop Alzheimer’s disease or another form of dementia, which could threaten client assets and practices that took decades to build.
As the likelihood of an aging financial professional developing some type of diminished capacity grows, so does the importance of having a succession plan. Financial professionals are committed to helping clients plan for uncertainty, so it’s important for them to do the same. To help protect their clients and practice, a senior financial professional should have a succession plan with an agreement to receive a regular physical, including an evaluation for mental capacity.
It’s common for financial professionals to recommend that an aging client list a trusted person on their accounts who can speak with them and their financial professional should they suspect diminished capacity. Older financial professionals should consider that same strategy for themselves and appoint a trusted person who can speak candidly with them if they suspect diminished capacity might be a problem.
Recognizing the risks posed by an financial professional with diminishing capacity, in 2016, Securities America launched a multi-departmental effort to watch for potential warning signs among financial professionals. Representatives from practice management, supervision, client response, internal audits and the rep relations departments monitor activities and listen closely when speaking with financial professionals for indicators their decision-making ability may be deteriorating. If they suspect a problem, it is reported to the Financial Investigation Unit for follow up.
Employees rely on a variety of tools to help identify potential diminished capacity, including a matrix of red-flag behaviors and the Financial Planner Competency Profile drafted by the Financial Planning Standards Board. The profile is a comprehensive analysis that identifies the knowledge, skills and competencies required to perform tasks associated with serving as a financial professional.
The behavior matrix is broken into four categories: professional responsibility, practice, communication and cognitive ability. Each category includes a list of related red-flag behaviors, such as:
- Personality changes
- Frequent calls to the home office with questions on routine business issues
- Unusual trading patterns
- Forgetting to complete routine compliance requirements
- Difficulty articulating a message
- Frequently losing their train of thought
- Distress about common issues
- Difficulty processing or understanding topics discussed with supervisor
- Asking irrelevant questions
- Forgetting previous conversations
- Repeating questions
The number of instances investigated by Securities America since the program started is low, but the consequences of diminished capacity can be significant.
Should a financial professional develop some form of diminished capacity, they may be encouraged by their broker-dealer to sell their practice. Should they choose not to sell, the broker-dealer could withdraw their contract.
With so many guardrails in place at the home office, Securities America hopes to reduce the probability that an advisor suffering from diminished capacity goes undetected and makes a costly error, Verboon said.
While proactive monitoring provides a safety net for the financial professional and their clients, Nick Halbur, a senior associate attorney with Elder Law of Omaha, in Omaha, Nebraska, recommends aging advisors include an agreement in their succession plan to receive a regular physical, including a mental health screening.
Facing the possibility of a dementia diagnosis is a terrifying prospect for anyone, but for financial professionals who manage millions of clients’ dollars, the consequences of even a single mental lapse could prove costly. Financial professional often forge strong relationships with clients. Consequently, they owe it to their clients to have their mental health evaluated, Halbur said.
“The responsible thing to do is get an assessment of their mental functions,” Halbur said. “Only after they get an accurate evaluation can they can approach a solution. These things progress slowly, so they need to get a benchmark of where they’re at and get regular testing to chart the progress.”
A court is unlikely to be sympathetic to a financial professional facing legal action due to an error caused by diminished capacity, Halbur said. Rather, it will probably take the stance that a professional with decades of experience should be aware of their important responsibilities and should have taken proper precautions.
“You have to protect your clients and protect yourself,” Halbur said. “You have to take the data seriously. If you end up in a courtroom and you missed an opportunity to be aware of the problem, it puts you in a bad position litigation-wise.”
Today’s senior financial professionals possess a wealth of knowledge. Whether their decision to retire is related to health or not, they can build a lasting legacy by passing on all they’ve learned to the next generation of advisors while they still can.
“A senior financial professional is going to have good wisdom,” Halbur said. “Addressing diminished capacity early on gives them the opportunity for a slow transfer of that wisdom and experience, if it’s done right and in ideal circumstances. They can provide pearls of wisdom and tips of the trade and have something to pass on beyond a book of business.”
Like their clients, today’s financial professional are living and working longer. If you’re among the many who choose to forego retirement to keep serving clients, you owe it to them to have a plan that will ensure your health won’t become a risk to their assets and your practice.