Fact Sheet for Advisors: Know The Signs of Diminished Capacity

By Carolyn Rosenblatt, RN, Elder Law Attorney,

and Dr. Mikol Davis, Psychologist

Brought to you by

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If You Know What To Look For, You Can Keep Your Aging Client From Losing Money

Every advisor needs to recognize the warning signs of diminished capacity in your older clients. No one is immune from losing capacity for financial decisions. It is a risk that comes with aging. And cognitively impaired clients do dangerous things with money. If they make unsafe decisions, they lose assets and you lose assets to manage. Do YOU know what to look for? WHAT IS DIMINISHED CAPACITY? The capability to make decisions regarding one’s financial assets is one of the first abilities to decline as cognitive impairment encroaches, according to a report by the AARP Public Policy Institute. This decline of skills often referred to as diminished capacity can occur well before a diagnosis of a neurodegenerative disease such as Alzheimer’s and/or dementia. Given that diminished capacity greatly impairs one’s ability to make financial decisions, its detection is critical to protecting older clients from financial harm. HOW TO SPOT DIMINISHED CAPACITY A report by the Securities and Exchange Commission’s Office of

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Compliance Inspections and Examinations, North American Securities Administrators Association, and Financial Industry Regulatory Authority outlined practices used by financial service firms for interacting with older investors. The report lists “signs” or “red flags” identified by firms that may indicate that an investor could have diminished capacity or a reduced ability to make decisions regarding their finances. These signs include, but are not limited to a client who:

1. Appears unable to process simple concepts. 2. Appears to have memory loss. 3. Appears unable to recognize or appreciate the consequence of

decisions. 4. Makes decisions that are inconsistent with her or her current

long-term goals and/ or commitments. 5. Demonstrates erratic behavior. 6. Refuses to follow appropriate investment advice. This may be

particularly concerning when the advice is consistent with previously stated investment objectives.

7. Appears to be concerned or confused about missing funds in his/her account, where reviews indicate there were no unauthorized money movements or no money movements at all.

8. Is not aware of, or does not understand, recently completed financial transactions.

9. Appears to be disoriented with surroundings or social setting. 10. Appears uncharacteristically unkempt or forgetful.

To learn more, access the full report at: http://www.sec.gov/spotlight/seniors/seniorspracticesreport092208.pdf

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HOW SHOULD YOU USE THIS FACT SHEET? 1. Keep it out and use it at the time of portfolio review for every agent client. 2. Document your observation describing them in the words used in this list of signs. To learn all you need to know about your clients with diminished capacity, get your CE accredited online one hour course, “Best Practices For Clients With Diminished Capacity.” You’ll get a lot smarter quickly about your aging clients! Click HERE today and learn more about what to expect from the course.

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844-315-4464 1 AARP Public Policy Institute. “Protecting Older Investors: The Challenge of Diminished Capacity.” http://www.aarp.org/content/dam/aarp/research/public_policy_institute/cons_prot/2011/rr 2011---04.pdf 2 Securities and Exchange Commission’s Office of Compliance Inspections and Examinations, North American Securities Administrators Association, and Financial Industry Regulatory Authority. “Protecting Senior Investors: Compliance, Supervisory and Other Practices Used By Financial Services Firms in Serving Senior Investors.” http://www.sec.gov/spotlight/seniors/seniorspracticesreport092208.pdf