Difficult as the conversation might be, there are a host of pitfalls if this eventually isn’t planned for
It’s deeply human to avoid a difficult topic of conversation. Many live by the rule of never discussing politics or religion, especially in a professional environment, and while advisors can safely avoid those two minefields with clients, other more personal topics will eventually become unavoidable. As Canada’s population ages, dementia and cognitive decline is one of those difficult topics that advisors have to address, even if it feels so difficult to talk about.
Christine Van Cauwenberghe, Head of Financial Planning at IG Wealth Management, explained that many of the assumptions that clients and advisors have about processes like powers of attorney can go unaddressed. Operating under these assumptions, clients and their families may be unable to react the way they would want to changing cognitive circumstances. Van Cauwenberghe explained why, despite the difficulty it presents, advisors want to have these conversations with clients and prompt some serious planning about the prospect of dementia.
“One of the issues that advisors struggle with is sometimes they don’t want to have discussions about difficult or emotional topics. A lot of investment advisors are mostly comfortable talking about investments. Talking about death and disability can be awkward for some people if they’re not used to it and they may be raising something that the client hasn’t even particularly considered,” Van Cauwenberghe says. “The problem with dementia in particular is it can be very slow. And so it’s not usually the case where someone has complete mental capacity one day and then has almost no mental capacity the next. It’s often a very slow decline. So that raises issues for the advisor because they have to start making judgment calls as to when the client no longer has capacity.”
The power of attorney and trusted contact person designations are essential to planning for any potential cognitive decline. Van Cauwenberghe notes that many clients and their families can operate with false assumptions about powers of attorney. Frequently, she says, clients will assume that their family members can just step in and start having input on decisions. Without explicitly named power of attorney, that’s not possible.
She notes that others may be reticent to give family members powers of attorney because they think it costs them their independence. Van Cauwenberghe explains that these individuals are adding a decision maker to their lives, not removing their capacity to make decisions. Moreover, financial planners and advisors are empowered to ensure that a designated attorney is still operating as a fiduciary for that individual. In the power of attorney process, too, it’s crucial for clients to explicitly designate who would be responsible for their affairs should they lose cognitive capacity. If they don’t, they run the risk of an expensive court-appointed attorney.
While clients can make plenty of incorrect assumptions in the estate planning process, advisors can too. Van Cauwenberghe says that sometimes advisors will simply let a client put those plans in place with their lawyer, without asking the kind of probing estate and financial planning questions around how they might want to deal with a disability or cognitive decline. Sometimes, she notes, advisors won’t realize that these designations and plans also have to be approved by their dealer to ensure that the right people have been designated as powers of attorney. Individuals in other countries, she notes, are often unable to serve as financial powers of attorney as local securities regulators will prohibit them from giving trading instructions.
All of these assumptions and misconceptions can be addressed through a fulsome conversation with the client. Van Cauwenberghe says that it’s never to early to have that conversation. She believes every Canadian adult should have both a disability plan and an estate plan that are suitable for their needs. Even if a younger client doesn’t see the need for such a conversation, there are enough stories of young people losing capacity unexpectedly to necessitate this planning work. She also believes these conversations should be ongoing and that plans should be updated and reshaped when clients reach different milestones in life.
Getting clients onboard with these plans can be fraught with social and emotional challenges. Van Cauwenberghe believes, though, that storytelling can have real impact. She notes that experienced advisors tend to have more success in building these plans, in part because they have more stories to share. They can tell the client about when someone was unable to access their finances from a long-term care home, or when a young person was suddenly left disabled with no designated power of attorney. She says that even if younger advisors haven’t seen these stories play out firsthand, they can learn from veterans and share the same information in a way that resonates.
“Advisors can be of most assistance to their clients is simply by not being afraid to start the conversation. And I think that there are softer ways that you can enter into the conversation and you can make it clear to your clients that you do holistic financial planning,” Van Cauwenberghe says. “That you want to make sure that not just the client, but the client’s loved ones are taken care of regardless of what sort of life scenario may happen.”
