Diminished Financial Capacity: How to Plan for It and Help Others Who May Have It

The SEC’s Office of Investor Education and Advocacy and the Consumer Financial Protection Bureau recently issued the Investor Bulletin and Advisory: Planning for Diminished Capacity and Illness to address a growing concern for the country’s estimated 44 million adults over the age of 65.

Financial Capacity – what is it?

Financial capacity is an individual’s ability to manage his or her money and financial assets in line with his or her needs and own best interest. This includes things such as paying bills, keeping track of a check book, and understanding the consequences of various purchases and investment decisions. As individuals age, financial capacity may diminish due to medical conditions like Alzheimer’s and dementia, but also as a part of the normal aging process. It is an unfortunate fact that individuals with a diminished capacity to manage their financial affairs are more vulnerable to investment fraud and financial abuse. Preemptive planning can help minimize the chances of becoming the victim of an unscrupulous fraudster and can ease the burden on family members who may have to step-in if diminished financial capacity becomes a problem.

Preemptive Planning

Here are some relatively simple steps that can be taken to help lessen the impact of diminished financial capacity in the future:

• Have copies of important financial documents and information readily accessible for a trusted friend or relative, e.g. bank and brokerage account statements; user names and passwords for online account access; loan and credit card information; insurance policies; and Social Security and pension information.
• Provide the contact information for your financial advisors, lawyers, and accountants, etc.
• If appropriate, create a durable financial power of attorney giving someone you trust legal authority to make financial decisions for you in the event
• you become incapacitated. A financial power of attorney differs from a healthcare power of attorney which only governs decisions related to your health.
• Periodically update your information to keep it current.

Stepping-In

If you suspect that a friend or family member is showing signs of diminished financial capacity, there are some steps you can take to help:

• Offer to help with financial tasks, such as bill paying, balancing the checkbook, and the preparation of tax returns.
• Offer to attend meetings with financial professionals, lawyers, and accountants to make sure your loved one understands what is being said, and that his or her best interest is being served.
• Investigate the financial professionals your loved one is working with. You can review the professional background and complaint history of stock brokers at FINRA Broker Check and investment advisors at the SEC’s Investment Advisor Public Disclosure site.
• Offer to review account statements to look for unusual activity or mistakes that may indicate confusion by your loved one or financial exploitation.
• If you have been authorized to discuss your loved one’s accounts with his or her investment professional, make the broker aware of your concerns about your loved one’s diminished financial capacity.

Report Suspected Financial Exploitation or Elder Abuse

If you suspect your loved one may be the victim of financial exploitation or elder abuse, report it! There are several agencies that investigate suspected elder abuse and exploitation.

In Florida, you can report the suspected abuse of elders and vulnerable adults by anyone with the Florida Department of Children and Families Adult Protective Services online or by calling (800) 962-2873.

If the suspected abuser is a stock broker or investment advisor, you can report it to: 1) the Financial Industry Regulatory Authority (“FINRA”) online or by calling the FINRA Securities Helpline for Seniors at (844) 57-HELPS; 2) the SEC online or by calling (800) 732-0330; or 3) the Florida Office of Financial Regulation online or by calling (850) 487-9687.

Rabin Kammerer Johnson represents investors who have been victimized or defrauded by major Wall Street brokerage firms in arbitration before FINRA. If you or a family member has lost $100,000 or more, and may have a FINRA arbitration claim, contact Rabin Kammerer Johnson for a free and confidential consultation by calling toll free at (877) 915-4040.