FIDUCIARY DUTY TO SENIORS

FOR IMMEDIATE RELEASE
San Francisco Bay Area, California, United States of America (Free-Press-Release.com) March 22, 2011 --

The title begs the question, “is there a special duty that is owed to the elderly?” Not necessarily since fiduciary per se references the highest duty anyway. But the devil is in the details. Due to the decline in mental faculties after age 65 (I am excluding diseases and illnesses at this stage) the elderly are very apt to be confused by the material of risk and reward. Certainly by any of the truly convoluted indexed annuities or anything with a guaranteed payout. Since nil of current investment advisors can, or actually do an individual risk analysis, just how is it that they will truly be able to express the loss exposure in an understandable format. I simply do not believe that the documents provided by a mutual fund, for example, are adequate for those where there is, statistically, an inability to grasp the significance. Further, for decades, anyone who has dealt with clients over a long term knows full well that generally no one reads a prospectus. Universally it is the interaction with some adviser that defines what risk is being taken.

It is not my intent of providing reams of documentation to the decline of competency (there are thousands of articles on the Internet to validate) but to simply offer some evidence that demands a level of additional effort with seniors. This extra endeavor will require a separate formal statement outlining to the senior what planning was suggested, why the products were used, what the risk is, what is expected, what monitoring will be done, if any and so on. Frankly, such independent report is necessary each and every time by a fiduciary. The use of a prospectus, as stated, is not adequate nor is the simplistic computerized plan with pretty colored charts. Such review is needed so that the senior is not only fully aware of what is going on initially but this may be used in support of claim in litigation later on. I have been around long enough to see tha seniors forget, misinterpret what was being done and expect different results than what was presented. Written formal comments, numbers, etc can be worth a lot of words in arbitration or court. Miscellaneous notes can also corroborate but can also backfire if the planner accepted material that was not corroborated- the computerized financial plan document for example. Or where the definitions are confusing or wrong (standard deviation). Also remember that most states (all?) have statutes regarding elderly abuse for those over age 65.

Actually, considering the almost non existent consumer financial literacy to date, effectively any suggestion to anyone requires a separate validation by the advisor as to just what was done and why. This is not an attempt for perfection- one can still be wrong in terms of returns etc. But if a solid effort was made, that is the focus.

Cognitive Decline in Aging
http://www.unc.edu/~jdumas/projects/aging.htm

1. The decline of cognitive abilities in the aging happens generally after a person has turned sixty-five. However, the decline in a slow process and does not happen strictly on the person’s sixty-fifth birthday. Some of the symptoms of this decline effect the person’s ability to learn new and complicated material or skills. It is a myth that all older people are cognitively impaired, but there are certain processes, which are affected, mainly but not exclusively physical processes.

There are normal cognitive changes that take place when a person becomes older. There is a decline in information processing in aging. This means that when an older person is presented with new information, especially of the more complicated sort, it will take them slightly longer to process this information. There is also a need for more repetition when learning this new information. So, if an older person were learning new programming information for a computer, he/she will need more repetition regarding the instructions for that information. Also, since their learning process takes slightly longer, the information should be presented more slowly.

The older population will show a decline in the ability to divide their attention. It is difficult for them to switch quickly from one task to another, in two simultaneous tasks. In regarding "multiple auditory inputs" (Beisgen) there is a decline in being able to switch from one source to another. This means that if the person is doing a task on the computer which an instructor is giving further information simultaneously, it is more difficult for the older person to pay attention to both stimuli simultaneously. It would be better for the instructor to give information, then have the participant follow suit on the computer. However, there is no similar decline for visual input, which means that it would not be difficult for the person to which their attention from one visual aid to another. So, the instructor could be showing some visual aids for the participant and then the person can readily switch their attention on to their computer screen to follow the instructions.

Memory is also affected when a person becomes older. Primary and/or short-term memory is affected, as is long-term or secondary memory. There is greater decline for recall, and less for recognition. This means that it is not as easy for the older learner to recall instructions and directions as for a younger person. But if the instructor keeps repeating the instructions for some computer function, and then says only one part of an instruction, the person can easily recall the rest of the instructions. Also, the older person’s performance on tasks is greatly improved by cues, so the instructor could merely use a cue word or a picture and the person would remember the task and the process.

Differentiation of the degree of mental changes in old age can be influenced by the intellectual and educational level. A well educated 70-year-old man, with a wide range of interests, trying to be up-to-date in the fields that attract him most, has much more chance to preserve his mental balance and intellectual elan compared to his uneducated and disinterested peer, in whom passivism and decline of health, physical and spiritual vitality, are much more likely to occur. Therefore, the age of these two is similar only chronologically. Essentially, these are two completely different worlds. It is thus said that every environment, every culture produces its own type of the elderly, making the domain of old age huge and very variable.”

Most cognitive processes decline with age
2. It does appear that most component processes of cognition decline with advanced age if the difficulty level is sufficiently high. For example, the following processes have all shown age effects:
processes involving attention
working memory capabilities(the amount of information you can work with without losing track of any)
understanding text
making inferences
encoding(putting information into memory) and retrieval (finding information in memory)
end

The overall problem is that the financial material being/to be discussed is far beyond anything they may have heard before when they were younger- if at all. Further, much of it might be categorically different in any case, causing them anxiety and concern that the marketing/facts/heuristics that may have been presented are now obsolete or wrong. Add in math- a difficult subject in itself- along with words such as correlation, diversification and more and the senior may tune it out, simply agree in order not to appear stupid, or become agitated and belligerent to the point of not wanting to do anything.

Then we have an even more difficult assessment to make regarding dementia, pain and more than will, almost assuredly, taint the entire process:
Elder health
Most older adults enjoy good mental health, but nearly 20% of those who are 55 years and older experience mental disorders that are not part of normal aging. The most common disorders, in order of prevalence, are anxiety disorders, such as phobias and obsessive-compulsive, severe cognitive impairment, including Alzheimer’s disease; and mood disorders, such as depression.
And

Ageing persons will experience decline in mental skills almost 15 years prior to their death, even though they may remain free of dementia. Their spatial reasoning, perceptual speed, verbal ability are specific aspects of this cognitive decline, which are not necessarily due to the ageing process according to Swedish researchers. (Males at age 65 have an actuarial liftime of about 18 years; women close to 21 years.)
The “terminal declining phase” occurring before one’s death unfolds many other ailments such as the beginning of heart disease, lack of sufficient mental and physical exercise, or even dementia at a nascent stage, which cannot be detected.
Dementia

As stated above, it is very difficult- certainly for younger advisors who have not had extensive dealings with the elderly- to detect certain aspects of early dementia or Alzheimers. (It is not my attempt to suggest in any way that I am an expert in this area. But I did teach Long Term Care for six years for continuing education and have had several relatives and friends suffer the indignities of Alzheimers- including my mother who was institutionalized for over 10 years). Short term memory is one of the first indications of a potential problem. If the client is having problems within the discussion, I’d definitely suggest caution. Of course, that is good advice no matter what age, but is extremely important here. From the Brookdale Center on Aging, If you are 65 years of age, you have a 10% probability of developing Alzheimers with the next year. At 75, the odds go to 40%. In your 80's, the odds increase to 50%.’ That is a huge number since the number over age 65 is greater than 35 million. So it is clear that advisors WILL be sitting with those with dementia if they deal with the elderly at all, Be very wary and cautious of any warning signs. Do more homework and read more articles for a better understanding.
Other fiduciary Reviews:

When you are dealing with those over age 55, there are two issues that tend to be lost in the planning process. Generally it is not the request to seek an attorney for a will or living trust- that is generally a given for an advisor. The points I am making is for absolutely focusing on what has been identified for long term care. You cannot, as a fiduciary, neglect this issue. The cost is roughly about 70,000+ annually for such care- though that is nursing home care, the most extensive care given. Most do not need that initially (only about 18% need nursing home care) and current policies cover assisted living- generally costing about 1/3 to ½ of a nursing home. The coverage period for men is about 2.5 years for men and 4+ years for women. How is this going to be paid for- also recognizing that inflation will up the costs greatly over time. (The issue is addressed more definitively herein.)
I suggest that one read: "The Coming Wave: Professional Liability Lawsuits for Failure to Recommend a Plan for Long-Term Care" by Harley Gordon, Attorney at Law (2004). He notes in one area,
“PROFESSIONAL LIABILITY FOR BREACH OF DUE DILIGENCE

Due diligence: "The care that a reasonable person exercises under the circumstances to avoid harm to other persons or their property." Merriam-Webster's Collegiate Dictionary

There are four areas where financial planners face potential liability:

1. Failure to talk about a plan for long-term care as part of a financial retirement plan;

2. Simply selling long-term care insurance (LTCi) disconnected from a plan for long-term care;

3. Selling the wrong type of policy and amount of coverage;

4. Failing to talk about the subject with wealthy clients who think they can self-insure the cost.

A fiduciary has no choice but to become very conversant on this subject. Merely referring the client over to an insurance agent is not acceptable. So how do they incorporate the insurance from the overall planning? Were such costs identified in the formal budget?

It is a difficult area to get comfortable with. It is everchanging and with a lot of companies raising premiums or dropping out of the business altogether. Yet anyone stating that they are a financial advisor must cover this competently.

Life Settlements

Also addressed more fully herein is the simple fact that most elderly have purchased life insurance decades previously. Can the afford it? Is it necessary? Is a termination of the policy being considered? What are the surrender values?

If any of these issues are evident, the advisor must review the potential of a life settlement- the sale of a life insurance policy to a buyer. If the situation is applicable, and one is over 70 (generally) or in ill health (at any age), it is possible to ‘shop’ the policy in the life settlement market for a value that is potentially much higher than the cash value. Obviously this is not a simple effort but it can provide substantial monies when needed most. But it will require an advisor who has full knowledge of the opportunity. It may have to be referred out to another, but as a fiduciary, the advisor will need to oversee the effort to assure it is properly handled.

Summary

Fiduciary duty is necessary for anyone but seniors do require extra time due to the simple element of aging. Further, the effort is needed because they are apt to misconstrue what was said- or forget it altogether. As such,

the formal written documentation is necessary to validate what was done and why. One cannot depend on the computerized plan that is far from comprehensive . Certainly the risk questionnaire is so far removed from reality as to be useless. Nary a single consumer knows what their risk level is and to infer a senior can do it with 10 or 15 questions is total folly.

Before any plan is attempted, a budget is almost always required along with individual capability with a financial calculator. This is not idle commentary meant for years to come- this is an imperative effort that must be conducted each time by a fiduciary.
Lastly proper planning by a financial ‘whatever’ needs to include long term care at a minimum. It definitely demands a good knowledge base by the advisor of this topic since a simple referral to an agent is not going to relieve the responsibility of competence.

More information can be found online at http://EFMoody.com

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