Finance firms tackle the difficult issue 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.”