As a long-time financial planner, I’m seeing more and more clients reach, not just retirement, but their final years. An especially important issue at this stage of life is how to protect your financial resources from an unexpected threat—yourself and those closest to you.
One of my saddest professional experiences came recently when one of my long-time clients, a man in his late 80’s with no immediate family and few close friends, was diagnosed with early Alzheimer’s.
Ernie was prepared for this. He had both a financial and health power of attorney in place naming his niece, who was also a beneficiary of the estate and lived out of state, as his agent. He also had signed a Letter of Direction giving us permission to contact his niece if we had any concerns about Ernie’s behavior. What could go wrong?
At what proved to be our final financial planning review meeting, we asked Ernie to have the niece present so we could bring her up to date about his financial planning and investments. The niece didn’t appear to have a lot of financial experience or understanding, but that isn’t unusual. Neither did Ernie. Throughout the meeting, which seemed to go well, Ernie appeared cognitively sharp and present.
Shortly after the meeting, we received a notice from the custodian we use for our client accounts that the niece contacted them directly, instructing that we be removed from Ernie’s accounts and that she have full control of the funds. The niece never contacted us or gave us a reason for the termination of our services.
I was stunned. Yet ethically we were required to comply by turning over Ernie’s holdings to the niece, who clearly lacked the financial expertise to manage the portfolio. To complicate matters, we found out she had moved Ernie into a memory care unit, and because of the COVID-19 lockdown, we were unable to meet with him to confirm that he was aware and approved of firing us as his financial planner.
All this seemed a red flag for a type of elder abuse, extortion. I made a number of calls to our custodian, Ernie’s attorney, our attorney, and the state to see what could be done to protect Ernie from any wrongdoing by the niece.
My attorney eventually said, "Rick, it sounds like you have done all you can do under the circumstances. The problem is that if the client is legally competent the law doesn’t do much to protect oneself against making bad decisions."
Ernie's "bad decision" was appointing someone as his power of attorney who wasn’t informed of his affairs or competent to manage them, who also had a financial conflict of interest as a beneficiary of the funds.
In the past, I have rarely questioned the integrity of someone a client wanted to appoint to hold their power of attorney. While I have asked about their competence, it’s never been a big issue, especially because of our involvement. I naively assumed anyone vested with the responsibility of looking after the financial affairs of another person would be relieved to have an experienced fiduciary financial planner to help them. I may need to develop strategies to help clients better protect themselves.
No one wants to consider the possibility of mental decline, but it's essential to do so. Given the effort you’ve spent on building financial resources for old age, it’s vital to carefully consider who you will give complete control of those resources before you name them. They need to have the knowledge, good sense, and integrity to manage and use your resources to generously support you, rather than themselves.