As the authors of this article say, professional advisors should have capacity and vulnerability issues at the forefront of their mind at the initial stages of the client relationship.

As clients grow older they may suffer from cognitive decline and other capacity-related conditions. This raises questions about the responsibility wealth advisors have in working with senior adults. And these conditions don’t just apply to older citizens. Being sensitive to these concerns as well as knowing when or whether to use legal instruments such as power of attorney, are matters that advisors must confront. This news service has reported on how firms act and advise on capacity problems (see examples here and here). In a sense, this topic gives the term “trusted advisor” sharper relevance. 

We are grateful to Alicia Tan, associate, and  Méabh Kirby, trainee solicitor, Farrer & Co, for their thoughts, and invite readers to respond. The views of guest writers aren’t necessarily shared by the editors of this news service. Please email if you want to comment to tom.burroughes@wealthbriefing.com

Identifying diminishing capacity and protecting vulnerable clients no longer solely exists in the realm of medical practice. As the population ages, clients are developing long-standing relationships with their financial and legal advisors, making such advisors well-placed to identify and protect vulnerable clients. 

Advisors must be specific about the decisions that the client is being asked to make and ensure that their client has the capacity to give instructions. Yet capacity is a fluctuating concept that can arise for different reasons and manifest in different ways. Advisors must be equipped to identify broader signs of vulnerability in clients and comprehend the fluid, complex form that capacity issues take.

Warning signs
The legal test for capacity is set out in the Mental Capacity Act 2005 (MCA). This comprises two stages – whether the person has an impairment or disturbance in the functioning of their mind, and whether this impairment makes them unable to make a decision for themselves in respect of the matter at hand. The legal presumption under the MCA is that a person has capacity unless the converse is established. Nevertheless, the presence of one or more of these warning signs should encourage increased vigilance from the advisor. 

Dramatic departure from previously stated intentions
Clients are entitled to the freedom to change their minds. However, when a client gives instructions manifestly at odds with previous instructions and intentions, advisors should be alert to cognitive impairments affecting their decision-making.

Rambling, inconsistent, or incoherent instructions
Financial and legal matters are complex, and the role of the advisor is to assist clients in understanding these matters and making decisions about them. Yet where clients appear incapable of comprehending what is being explained, or giving instructions and making decisions, even after clarification, advisors should consider whether cognitive impairment may be affecting their reasoning. 

Heightened and erratic emotions
Strong emotional response is not entirely out of the ordinary, particularly when clients are going through difficult life events, the sort which may require professional advice. However, advisors must remain observant to extreme displays of emotion that are out of proportion with the client’s situation or previous disposition.

Symptoms of Alzheimer’s include severe mood changes for example. Maintaining a good relationship with clients will enable advisors to discern whether extreme emotions are a sign of cognitive impairment as opposed to personal circumstances or a client’s customary manner.

Making decisions that would lead to a manifestly negative outcome 
Clients have autonomy to make their own decisions, even those that are inadvisable. Advisors should make clients aware of risks and consequences of inadvisable decisions. However, advisors must stay alert to the fact that clients who persist in making ‘bad’ decisions after receiving such advice, particularly if they do not seem to truly comprehend the severity of the negative consequences, may be in a position of vulnerability – from health conditions impairing cognition to undue influence from third parties.  

Instructions being given through a third party
Clients may wish to have a third party, such as a carer or adult child, to deal with day-to-day communications. This is not unusual, but advisors need to be alert to potential abuse. Key warning signs are where the client is not copied into emails from that third party, if the third party is resistant to the client communicating directly with the advisor via phone call or meeting, or if the client attends but appears disengaged or confused.

Next steps:

Speak to the client
Developing candid and open discourse with your client is an important part of any professional relationship. Mental capacity is highly personal meaning that it is important to address it in a sensitive manner in order to maintain client trust. Speaking to the client about the merits of carrying out a capacity assessment is a delicate conversation, but an important one. One way to broach the topic may be to explain to clients that undergoing a capacity assessment is not a reflection on their lack of capacity, but rather a step that should be taken to protect future decisions from challenge.

Speak to their support system
Provided you have your client’s consent, developing communication channels with their family, trusted friends or other professional advisors can give you an insight into the client’s habitual disposition and whether they are acting out of character. Fellow professional advisors will be under similar duties to ensure that the client is protected and that safeguards are put in place. This should be done in a sensitive manner, compliant with any confidentiality protocols.

Training and records
Undertaking training on how to spot reduced capacity is essential for advisors, particularly given increased professional liability. Advisors should keep records and logs of meetings with clients. Asking open-ended questions to test memory and understanding can be a useful way of discerning whether the client may have diminishing capacity. Ensure that you are aware if the client has a Power of Attorney in place, so that you know who to contact in the event of mental decline.

Professional advisors should have capacity and vulnerability issues at the forefront of their mind at the initial stages of the client relationship. It is far easier to put in protective measures before mental decline begins to take place, and that should be the goal of all advisors – as far as possible, empowering clients to make their own decisions before any potential loss of capacity.