Contingency Planning to Help Clients Avoid Age-related Financial Risks

Conversations around aging typically focus on retirement income planning and investment risk, but what’s often overlooked is a plan to manage the financial risks associated with a decline in cognitive health — when an individual begins to have difficulty making sound financial decisions.


Aging is not only skin deep; it has profound effects on the brain. Researchers are developing a better understanding of the ways age affects financial decision-making and our capacity to plan. Advisors can use these insights to address longevity risk, including how best to plan ahead of aging-related conditions, such as cognitive decline.

We all age at different rates and with different circumstances. Mild cognitive decline, dementia, and Alzheimer’s are related but distinctly different types of cognitive decline. We can think of them as a spectrum of conditions. Some people may only experience mild cognitive impairment, even late in life; for others, this may be a precursor of Alzheimer’s disease. There is a boundary between common age-related cognitive decline and dementia.1

Empowering Clients — We Can’t Predict, But We Can Better Prepare

Health and financial wellness are intertwined. People are impacted by cognitive decline in different ways, but often financial decision-making abilities start to decrease while confidence levels increase. This puts these investors at higher risk of making poor financial decisions, even though they aren’t likely to perceive any differences in their abilities.2

The financial advisor may be the first person to broach the subject of cognitive decline with a client. In fact, they may be in a better place to have this conversation than are family members, because it’s easier for them to be objective. An advisor can help the client acknowledge the need to plan before the onset of cognitive decline — and to act on it.

All too often, individual investors are uninformed or in denial about the risks of cognitive decline

There are major hurdles blocking six out of ten clients from making a plan, including the fear of losing independence and the lack of a sense of immediacy.3 But avoiding the issue simply means increasing the potential for adverse financial decisions, financial fraud, financial abuse, and the emotional stress on clients and their family members.

Fear of loss of independence: “I want to keep making my own decisions” 

Lack of self-awareness: “I still make good financial decisions”

Anxiousness about mortality: “I don’t want to think about it”

Aversion to counterparty risk: “I can’t trust someone else to make these decisions”

Source: State Street Global Advisors’ Survey, “Not Just a Number: Perceptions and Behaviors Related to Cognitive Decline and Financial Decision Making”, 2015.

Where to Begin — Addressing Cognitive Skills As Risk Management

Cognitive decline can be a sensitive issue, but failing to address the topic directly with clients can impact entire families and underscore the point that an individual’s financial wellness goes beyond portfolio performance.

Advisors who are mindful of the challenges investors face as they age can apply a strength-based approach to the conversation, building on the investor’s own experience, wisdom, patience and family support. Take cues from your clients, but approach the conversation with intent; even the most difficult topics can become less stressful with open and respectful dialogue. Clearly understand privacy laws and encourage clients to prepare documentation that outlines their plan to address potential cognitive impairment. Informed consent is an essential part of the planning relationship.

Conversation Starters for Financial Advisors

Our research, in-depth interviews with individual investors and their families, financial advisors, and a range of leading experts in their respective fields helped inform our conversation examples below. These are hypothetical examples based on practice techniques and two modes of communication — one is proactive communication (to help clients avoid potential risk), the other is compassionate communication (to help clients take action). Each situation is unique, but the goal is universal: Empower clients to minimize the financial risks related to cognitive decline by planning ahead.

Proactive Client Communication: Planning Ahead for a Long Life Well Lived

Compassionate Client Communication: When a Team Effort May be Required

An Action Plan for Every Client

A comprehensive checklist of financial and legal items is a critical tool to help protect clients from risks associated with cognitive decline. All clients should be able to identify the location of legal documents, all financial accounts, and the passwords to access critical information. This information should be held in a secure environment and be accessible to an appointed family member or professional fiduciary. Document personal preferences regarding considerations that fall outside of the specified direction provided in a will or trust document.

Living wills and medical directives can provide guidance for handling certain medical situations. A durable power of attorney for health care appoints a person to make health care decisions and can be structured to become effective only upon incapacity. A durable power of attorney for property can provide continuity of decision-making for business and/or personal affairs.

Legacy planning should focus on the client’s wishes and be communicated with the family. It’s about respecting the wealth creator’s wishes, not those of a family member or caregiver who may be influencing their loved one.

Ideally, financial goals, personal preferences and estate plans are prepared and shared long before cognitive decline impairs financial decision-making. That may be easier said than done — combining the topics of family and money can be overwhelming for even the most open and communicative families.

Review the list of services that will produce to-do lists in any of these areas:

  • Goal setting in the context of their personal situation
  • Estate planning including asset transfer and gifting strategies to carry on philanthropic goals
  • Budgeting to properly manage cash management
  • Tax planning when they start to receive Social Security, pension benefits, 401(k) payouts or IRA income
  • Insurance planning including long-term care insurance, life insurance (when to buy, where to purchase, how much is needed, etc.)
  • Health care planning such as special assistance for beyond what insurance will cover (for example, spousal care or special needs children)
  • Contingency planning toward long-term care and other assistance needs in home or outside the home; end-of-life planning (e.g., terminal illness, proverbial bus; natural end of life)

Integrated, Methodical Planning Plus Active Communication

None of us are invincible, nor should we be overwhelmed by the fear of the unknown. And while everyone hopes that the statistics will not apply to their personal situation, hope is neither a plan nor a strategy. Advisors who guide their clients to proactively manage the potential risks of cognitive decline are helping them maintain control and achieve peace of mind. Approaching the topic of planning in a way that is both direct and empathetic can help protect clients and their families from added stress and risk, ultimately taking the client relationship to the next level.