Let’s face it. Your older clients are some of your best clients — they have all the wealth — but they also present unique challenges that come with old age.
Dealing with these aging clients could often entail getting sucked into the affairs of litigious relatives and disputing with families who have an eye on the estate, according to experts speaking at the Advisor Group’s Fall Compliance Conference.
“With boomers living longer, up to a point where they develop the illnesses of old age — dementia, loss of ability to make one’s own decisions and care for oneself — there’s going to be a huge temptation to cheat, because the trailing boom, which was looking to inherit their parents’ assets to secure their own retirement, are going to get desperate,” says Arthur Fish, partner, Borden Ladner Gervais.
This desperation will put the focus on advisors, Fish warns, because “you are where the assets are. If you don’t help families get access to the assets, they’re going to get angry, and you’ll lose customers. And if you’re too helpful you’ll expose yourself to all kinds of liability.”
So with risks getting higher, assets getting larger, and people getting more litigious, the best way for advisors to stay safe is by providing their aging clients with a higher level of service and getting the basics right.
For Fish, that boils down to simple things advisors commonly tend to overlook, such as revising consumer contracts so that they are legible and easily understood by people who are aging, may have developed vision problems, or whose cognition may have slowed. It could even be something as obvious as organizing for meeting rooms with reduced background noise, so that people with hearing problems can better understand what is said.
But nothing is more basic than updating an aging client’s KYC form on an ongoing basis, according to William Donegan, chief legal and regulatory officer at Worldsource Management.
“Between ages 63 to 73 to 80 there can be fairly significant changes in terms of income requirement, healthcare needs, [and] amounts of money needed for new or family expenses,” he said.
Donegan also asserts the importance of the KYP process — knowing your product. “It’s important to pay attention to products with withdrawal penalties or products that lack liquidity, and be concerned about whether or not there’s a secondary market for the product. When you’re looking at guaranteed minimum withdrawal benefits, be concerned about fees that are attached to them.
“The basic rule that applies to all products — don’t sell it if you don’t understand it — applies even moreso to senior investors, because any complaint involving a senior will entail a very sympathetic complainant, and will invariably end up costing you a lot,” Donegan adds.
One of the most common threads to problems arising in the case of death or incapacity is a change of ownership, or a change in who has the right to issue instructions.
When ownership or control shifts hands due to death or mental incapacity, Fish says advisors need to realize they’ve now got a new client relationship and an obligation to document it. Secondly, they’re working with someone new, so they need to work through the compliance process all over again. Advisors also need to pay attention to the risk profile, which almost certainly changes as a result of circumstances where the older client can’t make his or her own decisions.
And despite due diligence, if you still find yourself caught in a dispute, Fish offers simple advice: Don’t dither. “Don’t try to keep everybody happy. If necessary, put a freeze on the account. Create a paper record to show you’re on the game.”
If an impasse ensues, Fish suggests that the advisor mail out a letter with a clear timeline — say, 10 days — for the family to come to an agreement or take some decisive step to resolve the log-jam. If they don’t, the advisor can apply to court as an innocent stakeholder, ask for permission to go to cash, and pay the assets into court pending a judicial resolution of who has the right to deal with them.
In the end, diligence has its benefits. First, it creates a paper record showing you responded appropriately. Second, it provides the parties with a powerful incentive to behave. Finally, if they really can’t come to an agreement and you’re stuck, you’re the innocent third party and can get out with virtually no risk of liability.
Filed by Kanu Vashisht, Advisor.ca, Kanu.Vashisht@advisor.rogers.com
(12/03/08)