Money and Memory: A Coming Concern

When mental capacity is in doubt

The prospect that someone with a cognitive disorder might quickly deplete a nest egg or fall victim to a scam is why regulators, financial institutions and consumer advocates are trying to get ahead of the problem.

"The silver tsunami is upon us, and it will continue for the next 15 years. We will see a large portion of our population turn 65," says Lynne Egan, chair of the senior issues and diminished capacity committee for the North American Securities Administrators Association (NASAA). "One-third of those people will have some diminished capacity, mostly related to general aging, but some will be as a result of dementia."

Some investment firms, including Merrill Lynch, Transamerica and Edward Jones, have started educating their advisers about the warning signs of dementia and elder financial abuse. Baltimore-based Transamerica, for instance, within the past year published financial guides for advisers and caregivers dealing with people with dementia.

When a client's capacity is in doubt, some firms will go so far as to freeze a questionable transaction and contact the client's family, Egan says.

"Sometimes we may have to make a phone call, not to give away account information but to say to the daughter in Dallas, 'We have concerns about your mother. You need to fly back to St. Louis,' " says Ron Long, director of regulatory affairs and elder client initiatives at St. Louis-based Wells Fargo Advisors.

Long recalls a case recently where an 83-year-old client could not be convinced he was the target of a lottery scam. Wells Fargo held off sending money from the man's account to the bogus lottery and contacted his son, who was able to persuade his father of the truth, Long says.

One family's story

Michelle Palomera, 47, of Scituate, Mass., started noticing changes in her husband, Ken Sullivan, several years ago.

He was forgetting things that he'd always handled before, such as paying bills. Sullivan and his doctor initially thought the changes were related to the stress of his job as a senior executive at a Boston financial services firm.

But Palomera insisted on a diagnois from a neurologist. It was not good news. At 47, Sullivan had early onset Alzheimer's.

The couple doesn't have long-term care insurance. And now her husband is ineligible for it, Palomera says. With daughters ages 10 and 12, the couple needed to assemble a team of experts, including an elder law attorney, to assist with long-term planning.

Unable to perform his old job, Sullivan is now on disability and spends time volunteering. "When I first got the diagnosis, I thought it was the end of my life," he says. "Now I know that you can live a good life with it. It's a little more complicated, but it's still good."

The family's experience has convinced Palomera that financial advisers need to be more aware of potential health issues. "As part of the new client process, they really should cover some nonfinancial things" like family medical history, she said.

What can be done

Firms are looking for solutions. Some have introduced new forms that allow customers to name a relative or other person to be contacted if they show signs of diminished capacity, says Susan Axelrod, an executive vice president with the Financial Industry Regulatory Authority (FINRA), which oversees brokers and securities firms.

Wells Fargo Advisors last year launched an Elder Client Initiatives team to answer questions from its advisers around the country on how to handle cases of suspected dementia or report elder financial abuse in their state. It can be complicated because each state handles these situations differently, says Long, who heads up the team.

Yet these differences may be gradually disappearing. Missouri in June became the third state to allow investment firms to delay for 10 days the release of funds from the accounts of older clients who may be victims of financial exploitation, giving the firms time to contact authorities or the family. NASAA has been working on similar legislation that could be adopted elsewhere.

The investor advocate for the Securities and Exchange Commission wants to see a comparable regulation on the federal level. FINRA, too, is proposing a revision to its rules so brokerages can delay withdrawals from an older customer's account if fraud is suspected, Axelrod says.

Meanwhile, AARP is working with the American Bankers Association Foundation to produce education materials for consumers, financial caregivers and bankers on age-friendly banking, including how to address dementia, fraud and financial caregiving. A survey to be released next month by the AARP Public Policy Institute found that around 8 out of 10 older consumers and caregivers want banks to offer fraud prevention tools and to train employees to prevent elder financial abuse. "Banks can look at what the warning signs are so they can help provide better customer service for that person who has dementia," says Jilenne Gunther with the institute.