By Steve Dinnen Here’s a frightening statistic: About 42% of all people over the age of 55 will eventually develop dementia. The National Institutes of Health projects that new cases are expected to double by 2060. Aside from the tremendous burden this will place on our health care and social orde r, there is a financial tangle. How exactly do you manage money when your cognitive abilities have slipped beyond your capacity to make prudent decisions? If you’re a wealth manager, how do you work with a client in such a state of decline? Charlie Bottenberg, an attorney at Brick Gentry PC, and Dennis Markway, regional director of wealth management firm Apella Wealth, discussed this at a recent meeting of the Financial Planners Association of Iowa. These planners, along with investment advisers, have fiduciary responsibilities to their clients and are often on the front lines of spotting cognitive declines that might impair their clients’ money-management skills. Wealth advisers sometimes meet with clients once a year, maybe twice. Monitoring clients who are aging into the timespan when cognitive abilities typically decline will probably require more frequent contact. Markway cited an example of a person he saw fall within weeks from perfectly capable to incapable. And of course, virtual management precludes any sort of personal observation. One wealth adviser at the meeting mentioned that he once had a conversation with a client who brought up a topic, then repeated it, then repeated it a third time in the span of a 15-minute phone call. This was his tip-off that all was not right. He knew relatives of the client, so he contacted them, and soon enough they were able to step in as authorized third parties with a power of attorney. Generally, a power of attorney is a legal document that appoints a trusted person (the “agent”) to manage your money, property and financial affairs. But there are several versions: Most people will want a durable financial POA, which is unlike a standard POA and remains in effect even if you become incapacitated, ensuring your finances are managed without court intervention. Bear in mind that the holder of a POA may have different personal goals, objectives and tolerance for risk. So much depends on the variables of the principal’s finances, said Markway, whether they have current adequate cash flows from pensions, Social Security and other sources. Most POA holders are family members. Naturally, this can create a potential conflict because, as Bottenberg noted, they are in two roles, as a fiduciary and a beneficiary. But here is where the Iowa Prudent Investor Act comes into play: It requires trustees to manage assets with the reasonable care, skill and caution of a prudent investor. (Other states have their own versions.) It falls on the wealth adviser to develop a relationship with the new, substitute client so they can move forward with the account in a manner that honors the originator. This is not an ideal situation. But given the reality of what so many families are facing now, and will in the future, it’s a workable solution until we find a cure for Alzheimer’s and similar diseases. ...read more read less