Older Clients Require Special Financial Planning Help

Professional planners are developing specific guidelines for dealing with older clients.


Financial planning software has improved enormously in recent years. The ability to deliver powerful advice over the Internet has created a new market for inexpensive advisory services. But for now, at least, such software can't look you in the eye and make informed judgments about your physical and mental well-being. Such judgments, it turns out, are critically important to the financial health of older investors and their families.

[See 10 Steps to Fine-Tune Your Retirement Plan.]

The Financial Planning Association (FPA) and AARP recently updated an earlier version of their jointly sponsored publication, A Financial Professional's Guide to Working With Older Clients.

With each passing year, the numbers of older investors grows, and so do their actual and potential problems.

Financial abuse of the elderly is a serious problem. One in five Americans age 65 and older has already been the victim of financial fraud, according to a 2010 survey by the Investor Protection Trust. Sadly, of course, some of this abuse is from financial professionals themselves. The FPA-AARP Guide sets forth things that ethical advisers can and should do to help older clients.

The first decision older investors and their family members need to make is whether to even use a financial adviser. It is not true that only investors with huge portfolios should consider an adviser. Financial planning should cover much more than investment choices. Spending, insurance, family, and estate considerations merit lots of attention in a typical financial plan.

It's a personal decision, but I favor fee-only advisers as opposed to advisers who earn some or all of their income via commissions and fees from securities transactions involving their clients' investments. Fee-only advisers may be more expensive in direct out-of-pocket fees, but I prefer the transparency of knowing that such advisers have no contingent financial interest the advice they provide.

Christine Parker, a fee-only planner in southern Maryland, chairs the FPA's Washington-area membership chapter, with some 800 FPA members. Hourly fees may run from $50 to $250, she explains, but fee-only planners also may work on an annual retainer (likely to be several thousand dollars a year) or charge a fee equal to a percentage of the client's assets being managed by the planner.

While a planner ideally would meet with a client several times a year, she said, there can be less expensive relationships. For example, a person may have individual sessions as needed and not commit themselves to a more extensive and costly relationship. Parker and many other financial planners also hold several group activities during the year. This allows them to see clients more frequently without the expense of a one-on-one counseling session.

[See Consumers Map Best Retirement Planning Moves.]

In setting up a financial planning relationship, the client must come prepared to ask lots of questions and make sure the planner is providing the services the client needs. "You could go to 10 different planners and get 10 different lists of services they provide," she said. "It's not a cookie-cutter process."

Another important objective, the FPA-AARP guide notes, is that financial planning should be a family affair. Children whose parents are in their 70s or 80s should think of financial advisory fees for their parents as an insurance policy, protecting their parents' estates and perhaps their own financial legacies from investment mistakes. As clients age, their tendency to make poor investment decisions increases, perhaps exponentially. Sitting across the table from an older client at least two or three times a year can be an invaluable early warning system.

"Notably, financial professionals may be among the first—sometimes the first—to detect a decline in their clients' mental and physical capacity as they age or succumb to illness," the FPA guide says. "Financial professionals may also be the first to detect evidence of financial abuse and exploitation from friends, neighbors, caregivers, as well as family members."

Parker endorses this objective, but notes that financial planners need more tools for how to engage family members. "This is something that is very challenging," she notes, referring to planners' codes of conduct and extensive confidentiality responsibilities that planners must fulfill. At the same time, older clients may be reluctant to share details about their finances and personal lives with children or other family members.

"If you're seeing warning signs [about a client's diminished physical or mental capacity]," she stresses, "it's important to have advance written policies and permissions from the client" to inform either a physician, family member, or other agreed-upon party. "We need to be able to recognize these red flags and do the right thing."

[See Pat Summitt, at 59, Takes on Alzheimer's.]

Despite the general advice of the FPA-AARP guide, Parker says, the industry needs a lot more informed guidance about how to proceed in cases where there is concern about the ability of an older client to carry out a financial plan, or signals that the client is being financially exploited by a family member or a financial intermediary.

If you do sit down for an initial interview with a financial planner, the guide has useful lists of questions to ask the planner. In terms of services you should expect from a financial planner, here's a list of things to consider, provided by the guide:

Goal setting: Retirees need guidance on setting short- and long-term goals in the context of their personal situation.

Budgeting: Creating and sticking to a budget may be the most important cash management issue a retiree faces.

Investment planning: Retirees often depend on investment income for living expenses, and most cannot afford speculative investments.

Retirement planning: Even current retirees may need guidance on lifestyle options and decisions, such as where to live, and their potential impact on their financial situation.

Tax planning: When they start to receive Social Security, pension and 401(k) or IRA income, retirees face a new set of tax rules they need to understand in order to manage their money wisely.

Insurance planning: Key issues for many retirees include whether to buy long-term care insurance or life insurance, when to buy it, and how much. Also, many need assistance understanding Medigap policies.

Estate planning: Retirees may need balancing assets to live on against those they hope to leave to their heirs.

Health care planning: Clients with specific health issues may need special planning assistance paying for care beyond what insurance will cover. They may also need help with healthcare cost issues for a spouse or a special needs child destined to outlive them.

Long-term care planning: Clients may need help allocating assets toward long-term care or assistance with insurance products aimed at meeting those costs. However, some clients may eventually need Medicaid to cover their nursing home care (Medicaid is the major source of funding for nursing home care). Therefore, care must be used in allocating assets so that the client does not become ineligible for Medicaid. Consultation with an elder law expert may be beneficial to protect the client's interests. They may also want to consider alternative long-term care arrangements such as continuing care facilities.

End-of-life planning: If a client is diagnosed with a terminal illness, it's important to have powers of attorney and other financial strategies in place as clients near the end of their lives.

Twitter: @PhilMoeller