An article in the February edition of The Insurance & Investment Journal concerns the increasing challenge for financial advisors in dealing with seniors’ issues such as diminished capacity.
The MFDA (Mutual Funds Dealers Association of Canada), following a recent summit including U.S. regulators, is encouraging members to use some best practices followed in the U.S., ‘as guidance’.
The article notes that with Canada’s aging, retirement oriented population, “Diminished capacity and other legal issues dealing with competing powers of attorney and joint and estate accounts are critical issues facing financial advisors.” No kidding…
According to a Statistics Canada study released last July:
- For the first time, there were more Canadians aged 65 and older than aged 14 and younger
- Those aged 65 and older are expected to be more than 1/5th of the population by year 2024 (about 4% more than the 14 and younger group)
- With those aged 80 and older, about 20% will have some diminished capacity
Therefore, inevitably financial advisors will be dealing with affected clients.
I’m reminded of an episode faced shortly before I left the financial consultant business in 2013. One of my last client appointments involved a senior age client, habitually met with individually, but this time with her daughter – which turned out somewhat fortuitous, insofar as having a ‘witness’ to effectively concur with my subsequent action. The client made a TFSA contribution, but the nature of her slightly discordant thinking process (which she started to evidence in a previous meeting not long before) caused me to err on the side of caution when it came to processing instructions; this decision, frankly, cost me commission, but I never received any negative feedback about deferring to the no-fee option.
The U.S. regulator has issued two proposals, which the MFDA in turn is providing as guidance for advisors here:
- When opening an account, the advisor should seek to obtain the name of an individual with whom information can be shared if necessary
- Completing a transaction can be delayed until more information is gathered if there are concerns about mental capacity
Planning diligence is also taking a turn, focusing more on withdrawal strategies, less on asset accumulation and allocation. In particular, time frame awareness is more vital, given less time for client portfolios to recover from market volatility.
While there are guidelines for appropriate estimated rates of return, these still need flexibility, as clients face different circumstances. Such return guidelines would be expected to “at least be in the ballpark” of what clients are looking for.
Advisors should attempt to influence what they can, like translating client goals into quantifiable ones, while recognizing that the luck of timing may intercede – for example, changing interest rates or the impact of a recession.
The MFDA has held more than 75 member education sessions in the last two years, many of them dealing with advising seniors. There is a senior’s resource section on its website. In addition, a consultation group has been launched to generate feedback on challenges faced in servicing senior clients, and therefore areas that regulators should consider for guidance.
Also, late last year the MFDA released a bulletin concerning the suitability of funds for seniors with deferred sales charges (DSCs). It concluded that members need ‘adequate procedures in place’ for ascertaining the suitability of DCS trades, and that this issue will continue to be reviewed for compliance purposes.