Client incapacity – are you prepared?

Planning for Client incapacity – it’s worth your time

The opportunity for advisors in serving senior Clients can’t be overstated. Many of your top Clients likely fall into this category because older Canadians disproportionately hold wealth.²

But the opportunity also extends beyond the immediate financial benefits. Evolving your business to better serve senior Clients is not only your duty of care to Clients, but also an opportunity to strengthen your value proposition and brand. That will help you turn Clients into Clients for life.

From a business standpoint, the senior demographic is a market many want to serve. It’s growing fast. For the first time in Canadian history, seniors outnumber children and make up the fastest growing population group in Canada.

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Unfortunately, this “Silver Tsunami” is carrying a significant side effect with it: higher rates of dementia. The prevalence of dementia more than doubles every 5 years for Canadians age 65 and older, to about 25% for those 85 and older.³

As an advisor, this can have a significant impact on your practice. You are in a unique position, and might be the first person to suspect something is wrong with a Client. And you have a responsibility to continue to provide advice and service to Clients, in good times and bad, including periods of incapacity. Fortunately, advance planning for the possibility of incapacity can make carrying out this responsibility much easier.

Putting safeguards in place

Incapacity isn’t confined to senior Clients: it can strike anyone at any time – a car accident, a stroke, a head injury is all it takes. That’s why planning for incapacity is something you should put in place for all Clients, of all ages.

Have the conversation

Planning starts with a conversation between you and your Clients. To avoid sensitivities – especially for senior Clients – position the conversation as part of the formal planning process that you conduct for all Clients.

Explain that the purpose is to ensure that everyone prepares for whatever events occur in the future. If you use an example, make it a generic one that could apply to Clients of any age (the proverbial “hit by a bus” scenario). Again, reiterate that this is not about now. It’s preventative planning just in case an incapacity issues arises in the future.

Prepare important documentation

A key part of the planning is ensuring that your Clients have key documents in place. All of your Clients should have:

• A power of attorney (general and enduring or continuing)
• A will
• A living will or medical directive
• Trust documents, if required for their estate plan.

If Clients don’t have one or more of these documents, you may want to refer them to a lawyer that you trust to look after their documentation needs. Make a note of what’s missing. Circle back with your Clients in a few months to ensure they have any missing documents in place.

Consider a TCP

Another key planning step that’s increasingly being used is having Clients designate a trusted contact person (TCP) on their account. They can provide consent for you to contact them in defined situations, such as suspicion of incapacity or financial abuse. ​Having a TCP in place lets you reach out and speak to someone about your Clients, without concern of breaching your Client’s privacy.​

While there are currently no regulatory requirements for Clients to provide a TCP, regulators are encouraging this as a best practice when a Client account is opened or when know-your-Client information is collected. Making it a part of your process is a good way to be proactive with Clients, your firm and industry standards.​

When you suspect incapacity

Having capacity means that a person can both understand the necessary information for making decisions and appreciate the consequences of those decisions.⁴

You may work with older Clients, particularly those in their 80s and 90s. It’s imperative to be aware of the symptoms and warning signs of diminished capacity or dementia. Warning signs include:

• Pronounced memory loss – or trouble following conversations or instructions
• Difficulty in processing simple concepts
• Difficulty speaking or communicating
• Being unaware of recently completed financial transactions.

If you suspect a situation of incapacity or financial abuse, follow the established procedures set out by your firm. These can include:

• Carefully documenting your Client interactions;
• Contacting the Client’s TCP or power of attorney;
• Notifying the firm’s compliance department or legal counsel of your concerns; and
• Assessing whether to alert external authorities if elder abuse is suspected.

Serve your Clients well

Canada’s demographic shift towards an aging society is bringing an abundance of opportunities, but also risks, for financial advisors. With longer lives and an aging cohort, cognitive decline and incapacity will play a much larger role in your practice.

Each Client situation will be unique. But one goal should be universal – to plan ahead and empower you, your Clients and their family members to minimize the financial risks related to cognitive decline. You can’t predict when incapacity will strike. You can proactively prepare to ensure that all of your Clients – in sickness and in health – are both well served and with you for life.