When a client request raises red flags

This article appears in the March 2022 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

The quandary

Your client Ken is an elderly widower you suspect has dementia because he sometimes repeats himself. On the other hand, he has no family nearby and you know he’s lonely and enjoys prolonged conversation. A long-time caregiver whom Ken trusts visits him a few times a week and is his trusted contact person (TCP). Ken phones you to say he’s short on funds this month, and you know that shouldn’t be the case. How do you proceed?

The experts

Kirsten Nelms Investment funds advisor, Leith Wheeler Investment Funds Ltd., Vancouver

Ken is at high risk for financial exploitation because of potential dementia as well as his financial resources and trusting nature.

At the beginning of any client relationship, I discuss not only investments but also family, friends and the client’s other professional advisors. I encourage clients to establish a TCP: someone the client trusts, who has no interest in the client’s assets and is different from a power of attorney. I explain that I would contact the TCP if I couldn’t contact the client for an extended period and required contact information, or if I had concerns about mental capacity and financial decision-making, or financial abuse.

At my request, Ken would have introduced me to his TCP and we would have documented what to do if I were concerned about financial exploitation.

With Ken’s request for additional funds, I’d meet him in person to ensure no outside influence, and we’d discuss how he’s doing, what the additional funds are for, and why the change in spending.

I’d also contact the TCP to ask if Ken has new acquaintances or there’s anything else that would impact his spending, and whether changes have occurred in his cognitive abilities. I’d dig into the details of the TCP’s responses to ensure consistency. I’d also contact Ken’s other professional advisors.

I would document all these conversations. And if I still had concerns, I’d potentially put our plan for financial exploitation into action. I’d also contact my firm’s compliance department and legal team. Together, we’d decide on next steps.

Ngoc Day Financial advisor, Macdonald, Shymko & Company Ltd., Vancouver

I’d ask Ken what the money is for. Typically, clients’ financial decisions percolate for a while, so they’re no surprise when they occur. If Ken’s request surprised me, I’d contact the TCP.

When speaking with Ken’s TCP, I wouldn’t mention finances and would instead ask if they’d noticed any changes with Ken or if he’d had any visitors. The conversation may reveal that Ken’s dementia has worsened or that he’s experiencing external influence. Scams targeting seniors, such as fraudulent email requests for money, are another possibility.

A face-to-face meeting with Ken would help me assess the situation. Knowing a client well has helped me identify external influence in the past. It’s a matter of regular contact and getting to know the client beyond money — discussing their family relationships, health, worries, upcoming plans. Regular contact also makes progressive dementia more apparent.

If I still had concerns after speaking with both Ken and the TCP, I’d escalate the situation by notifying my compliance department.

Ideally, Ken would have a power of attorney in place who I would have already met, and I could contact them as well. If Ken’s dementia is worsening, it may be time to make the power of attorney effective.

Make TCP part of KYC

Starting in 2022, Investment Industry Regulatory Organization of Canada and Mutual Fund Dealers Association of Canada rules require that dealers and advisors take “reasonable steps” to obtain from each client the name and contact information of a trusted contact person (TCP), as well as the client’s written consent to contact the TCP about possible financial exploitation, mental capacity and contact information for the client or client’s legal representatives. These circumstances should be described in the firm’s relationship disclosure information.

Alongside TCP provisions are conditions for dealers and advisors to place temporary holds on a client’s account in cases of financial exploitation and vulnerability (illness, impairment, disability or aging-related limitations) or concerns about mental incapacity.

To contribute your own ethical dilemmas or conduct quandaries, please email Michelle Schriver.