The majority of clients do not have a suitable plan in place to deal with the risk of cognitive decline, but there are tactics financial advisers can use to change this, according to State Street Global Advisors (SSGA).
Research by SSGA into the American population found that only 39 per cent of clients had a suitable plan in place to deal with the possibility of impaired financial decisions because of cognitive decline.
Brie Williams, head of practice management at SSGA, said a similar situation exists in Australia. She is personally motivated to see effective tactics put in place to protect clients, as there were none for her family when her father went through cognitive decline.
“My parents had created a financial plan long before the diagnosis [of a brain tumour], but it did not account for the possibility of cognitive decline. The belief was that time was on our side — they were both healthy and embraced turning 60 as the new 50. So there was a bit of a scramble to put the necessary puzzle pieces in place when life threw us a curveball,” Williams says in the introduction to The ageing brain: the impact of ageing on financial decisions report.
Ageing clients avoid, delay or sweep it under the carpet
Speaking at a briefing last week, Williams added there are three dimensions to understand before having a conversation with clients about cognitive decline.
These are:
- There is a disconnect between advisors and clients on this topic
- There is a pattern of avoidance from clients
- There is a significant risk of inaction from client
“If we look at tactics for consideration it’s about fostering open communication. The message to the investor [clients] is: “This is about giving you the ability to take control and be proactive in how you protect yourself and how you protect your family.””
Williams suggested an effective tactic is to fit the topic into a broader conversation about intergenerational wealth transfer, or family wealth planning, with the proviso that the conversation needs to be tailored to the individual.
Another tactic useful in reducing the anxiety a client may feel around the topic – a common occurrence according to the research – is to have a trusted family member or friend there as part of the conversation.
There is no cure, so try prevention.
Williams added: “If I look to some of our qualitative research, one of the quotes that stands out for me from an investor is: ‘I saw what taking care of an elderly parent is like and if I can help it I don’t want to put my kids through those circumstances’.
“Within that type of statement I see an underlying proactivity that the investor wants to take. They have learned from the experience they have had with the family in the financial realm, and they want to optimise and do better with their wealth management plan for their family.”
She cautions that language is an area to which financial advisers need to be sensitive, adding it was important to communicate that as an adviser you were not taking the keys away from the client.
“Language matters here, so it’s not about talking about financial decision making and opportunities coming out of your hands, because, again, that is not what this conversation is about. It’s about giving them control, security and protection of the assets they worked hard to build.
“This is about proactive managing for one of life’s most unpredictable moments. And if not managed proactively, [it] can lead to unintended negative consequences,” says Williams.
Planners can’t do everything for everybody
The other tactic is for financial advisers to establish relationships with a set of experts that might be needed to help navigate through a wide-ranging discussion. This may include people from the medical field, the psychological field and the social field, as well as legal, because there is only so much a financial adviser should be handling based on his or her expertise.
“And having that network of trusted experts can really round out a comprehensive solution for their clients, who need more resources here.”
Williams adds the financial adviser needs to be careful not to over-extend themselves in this situation because different clients will have different experiences, different families, and different needs of resources to drawdown on.
“It’s to protect them but it’s also to protect the financial adviser and practice.”
