Diminishing Cognitive Alertness and Financial Investments

by Joseph H. Spiegel & Anthony V. Trogan

SSDSlip slidin’ away, slip slidin’ away;
You know the nearer your destination,
The more you’re slip slidin’ away.
Simon & Garfunkel

Impaired financial ability can be an early indicator of Alzheimer’s and other forms of diminished cognitive capacity. Even persons with only mild cognitive impairment (MCI) without noticeable changes in everyday functioning can be victims of financial exploitation, losing funds needed to manage their care and their lives. This article discusses the significance of the problem, how to recognize possible financial exploitation, and the valuable role that mediation can play.

According to a report in the New York Times (October 30, 2010), citing Daniel Marson, a director of the Alzheimer’s Disease Center at the University of Alabama in Birmingham, about 15{6374cd691f93b889f56997066edd00101c0b1101740a269c89dfafd82f456312} of those persons with MCI will develop Alzheimer’s. The Alzheimer’s Association (2012 Alzheimer’s Disease Facts & Figures pp 8-21) indicates that Alzheimer’s exists in 13{6374cd691f93b889f56997066edd00101c0b1101740a269c89dfafd82f456312} of people over 65, and rises to 43{6374cd691f93b889f56997066edd00101c0b1101740a269c89dfafd82f456312} in those age 85 and older. The U.S. Department of Health and Human Services reports that approximately 40 million people are over 65, increasing by 2030, to 72 million persons, almost 20{6374cd691f93b889f56997066edd00101c0b1101740a269c89dfafd82f456312} of the United States population. (U.S. Census Bureau, Current Population Reports, www.census.gov/prod/2006pubs/p23-209.pdf) MetLife Mature Market Institute estimates that annual financial losses by victims of elder financial abuse is almost $3 billion and is increasing. (Elder Financial Abuse, June 2011 pp2-21)

Mature investors have often managed busy and thoughtful lives, taken care of a business or a family, and been contributing members of the community. They are competent, successful, and in control—until they aren’t. The problems and embarrassment of forgetting to pay bills, losing money through inappropriate investments, and difficulties managing accounts can be often kept hidden— until they can’t be.

Five “Red Flags” Signaling Impairment in Financial Decisions

  • Unusual ATM or Cash withdrawals or checks for unusual payments.
  • Transactions in financial accounts that have been dormant.
  • New Investment Advisors and/or new investments or annuities.
  • Unusual donations to “charities” or family members or third parties.
  • Changes to beneficiaries on life insurance policies.

When family members, health care professionals, or coworkers observe any of these, the person should be encouraged to seek a full health screening and meet with an attorney or competent financial professional. Incremental assistance and early planning can maximize protection. Slavish adherence to “preserving independence” too often results in irreversible losses.

Violations of federal securities laws and broker disputes fall under the jurisdiction of the Financial Industry Regulatory Authority (FINRA). Charged with the fair and effective enforcement of federal securities law, FINRA sponsors dispute resolution by private arbitration in cases involving stockbrokers, brokerage firms, and investors.

The issue of financial abuse of the elderly is so significant that FINRA has partnered with the Alzheimer’s Association to assist the financial industry with handling these matters. FINRA’s Office of Investor Education suggests a proactive approach to financial professionals to discuss with clients the effects of dementia and planning for the possibility. (FINRA, Regulatory Notice 07-43 p8) Despite this directive, clients are at times sold unsuitable products or directly exploited by brokers and agents.

An experienced securities lawyer can easily spot the inappropriate annuity, the churning and changes in the investment portfolio, the new and excessive give-aways to third parties—real and fictitious charities, companies, and family members. When these events occur, it is important to be able to assess the situation and develop a plan to ensure insofar as possible the client’s dignity, welfare, and financial safety.

Alternative dispute resolution, which is most often compelled by contract anyway, has an important role to play. Although arbitration is more efficient than court litigation, its discovery process, delayed scheduling, often arduous cross-examination, and uncertain outcome create substantial stress. Mediation with a skilled mediator can avoid the embarrassment of litigation or stress of arbitration, and with full disclosure and transparency, involve family members, accountants, and geriatric care managers in developing a comprehensive mutually agreeable plan. Mediation also provides a forum to share fears and goals and create non-traditional resolutions, which the confrontation of a formal hearing might prohibit.

Frequently financial abuse occurs through “affinity fraud,” where the person who sold the investment is related to or otherwise associated with the investor through membership in the same club, church, or condo association. Efforts at early mediation may be able to preserve some part of the relationship while recovering funds.

Even if a formal FINRA arbitration or court decision should result in a significant, collectible recovery for the investor, the next step is what to do with those funds. Mediation can be useful in structuring trusts and other vehicles for deposit of such funds before a payment is made.

Mediation is an excellent process for early resolution preventing further financial disarray. Generally, as soon as an insurance company or broker-dealer learns of an agent’s financial exploitation of a person with diminished capacity through unsuitable investments or outright fraud, they will react positively when approached through mediation. They will terminate or discipline the agent, notify authorities of the conduct, and make prompt efforts to reimburse the investor.

For the attorney’s own protection, discussions with clients, permissions granted to speak with others, mediation efforts and other sessions should be carefully documented and preserved. After consultation with the client, the attorney should assemble a team that will be part of the mediated process, including persons (family members/geriatric caregivers/financial managers) who will continue to meet the client’s ongoing needs. By participating in a coordinated, proactive mediation, the attorney not only resolves issues privately, cooperatively, and cost-effectively, but also strengthens the relationship with the client and the family for the future.

Joseph H. Spiegel, Esq. and Anthony V. Trogan, Esq. specialize in claims against stockbrokers and customer claims. They have been practicing law in the Detroit and Ann Arbor Area for over 30 years. Mr. Trogan and Mr. Spiegel have lectured extensively in securities matters. Joseph H. Spiegel has been the co-chairman of the Midwest Securities Law Institute annual seminar presented by Michigan State College of Law.