Prepare now, while still of sound mind
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What happens to retired Boomers who succumb to Alzheimer's disease or other forms of dementia but who still manage their own portfolios through online discount brokerages?
Jonathan Chevreau, Wealthy Boomer; Financial Post · Jul. 27, 2011 | Last Updated: Jul. 27, 2011 9:02 AM ET
Because of their fluency with technology, many Baby Boomers have embraced online investing to build their retirement nest eggs. But with age comes rising incidence of dementia, which suggests a scary thought:
What happens to retired Boomers who succumb to Alzheimer's disease or other forms of dementia but who still manage their own portfolios through online discount brokerages? With no human financial advisor to act as intermediary, is there not potential to inflict massive portfolio losses with a few ill-chosen clicks of a mouse? What if they're single, divorced or widowed and there's no spouse to notice their declining mental capacity?
Add to this the increasingly ubiquitous access users have to these accounts through mobile devices. On Monday, CIBC said it became the first Canadian bank to unveil a mobile brokerage app running on iPhones, BlackBerrys and Android devices.
Add up all three possibilities - an aging self-directed investor with a mobile device that lets one indulge in any fleeting investing whim at any moment in any place - and you can see the potential problem looming ahead.
All of which makes a BMO report issued Tuesday worth heeding. Written by BMO Retirement Institute head Tina Di Vito, Financial Decision Making: Who will manage your money when you can't? raises exactly these concerns.
Di Vito portrays dementia and Alzheimer's as "the elephant in the room." Some 500,000 Canadians already suffer from Alzheimer's or other forms of dementia, but the Alzheimer's Society projects this will more than double to 1.125 million by 2038.
Many Boomers (including yours truly) have experienced dementia through their parents, but it will soon afflict the Boomers themselves. After 60, the likelihood of dementia doubles every five years. By 60, the stakes are high. As BMO puts it, "just when the likelihood of developing dementia soars dramatically, a person's net worth is almost most likely to have reached its pinnacle."
The first wave of Boomers born in 1946 has been turning 65 throughout this year, so the process has already begun.
While most Canadians aged 45 years or more believe investment skill rises with age, studies show cognitive abilities actually decline, ultimately hindering their ability to make sound financial decisions. One problem, says University of Toronto professor of medicine Dr. Michael Baker, is that those suffering from dementia may not even be aware of it. The onset of Alzheimer's can be insidious, starting slowly with the symptoms developing only gradually.
Di Vito describes a "twilight zone" between full mental capacity and total incapacity.
But at some point, the descent can be rapid. Recent research has shown patients with mild dementia "experience a dramatic decline in their ability to make financial decisions over just a one-year period." They are challenged by such once-simple financial tasks as paying bills or viewing bank statements. They may change their behaviour, taking gambling trips or giving larger-than-normal amounts to a church, Di Vito says.
They also become more susceptible to financial fraud, since they are less able to spot signs of fraudulent telephone or Web-based scams.
So what to do about this? Boomers should start taking estate planning as seriously as wealth creation. Planning for possible financial incapacity is as important as other risks retirees worry about, such as outliving one's money, inflation or soaring health-care costs.
In particular, they need to draw up a legal document called a continuing power of attorney, or CPOA, which Di Vito describes as "tailor-made to deal with incapacity planning."
A regular power of attorney involves appointing one or more people to act as the grantor's attorney for financial affairs and assets. A POA can be for either property or personal care, says Elena Hoffstein, partner at Fasken Martineau DuMoulin LPP.
Either type can be a continuing POA, which means the POA remains in place even if the grantor becomes incapacitated. A "springing" form of CPOA comes into effect when a designated event occurs: typically medical certification that the grantor can no longer manage his or her affairs.
The nightmare scenario BMO is seeking to forestall is that of a person losing normal capacity in the absence of a CPOA. At that point, the likely consequence is to have a court-appointed guardian manage one's affairs (something called committeeship). Once you are found incapable, it will be too late to prepare a POA, make or modify your will, change beneficiaries or even give investment instructions to your financial advisor.
Fewer than six in 10 polled by BMO have a CPOA in place and 54% don't think they need one yet.
"Yet" is the operative word - and time may be shorter than you think.
nationalpost.com
jchevreau@nationalpost.com |
