When Howard Erman's long-time client ended up in a retirement home, he was not surprised that his middle-aged unemployed sons had squandered the elderly man's pension to the point that a professional guardian was appointed by the court to manage the estate.
"Maybe the two sons will be able to stay in the family home or maybe not," Erman said. "We're going to see what the guardian decides."
That's because once a guardian is appointed by a probate court, he or she becomes the sole decision maker over an individual’s entire life and savings. Depending on the guardian, that can be a positive or a negative for a financial advisor who has been working with a family across multiple generations.
"Tell the guardian how much you care about the family and communicate your availability as well as your fee schedule for ongoing advisory services," said Erman, who is based in Seal Beach, Calif.
Erman is fortunate in that his experience with elder guardianship did not involve abuse although his client's sons may have been taking advantage of their father financially.
"They were living off of his pension, in his home and spending his money that was set aside to pay for long-term care," Erman said.
Reports of elder exploitation are not uncommon especially with the rise in elderly Americans suffering from Alzheimer’s and other cognitive issues.
A 2016 Government Accountability Office (GAO) study cited eight cases of elder abuse in six states that resulted in penalties and restitution ranging from $20,000 to $160,000.
“Our first main resource question was looking at the extent of and type of abuse,” said Kathryn Larin, acting GAO director. “What we heard anecdotally talking to experts in the field is that financial mismanagement or financial abuse is among the more common types of abuse.”
Family guardians were embattled in two of the eight cases while six involved professional guardians or their assistant, according to Larin.
“We really don’t know how widespread it is or what types of abuse are most prevalent because there are no reliable national or even state level statistics,” Larin said.
One way that financial advisors can help is by reporting suspected financial exploitation or abuse to the agency that manages the elderly person’s source of retirement income such as the U.S. Social Security Administration, the U.S. Office of Personnel Management and the U.S. Department of Veteran Affairs.
“They each have their own fiduciary programs where they appoint representative payees to manage the retiree’s benefits,” Larin said. “These agencies oversee their representative payees and if the guardian is the representative payee that is a good place to start for an advisor to report exploitation.”
A 27-year veteran in the advisory profession, Jan Valecka recommends that every advisor have an information disclosure signed with clients who are 65 years and older so that any decline in memory or suspected abuse can be reported.
"Elder guardianship will probably become a special planning niche for some advisors in the near future,” Valecka said.
Valecka learned first hand how much labor guardianship proceedings require.
“There’s a lot of correspondence, phone calls with attorneys, meetings with family members and that time adds up,” said Valecka.
When Valecka’s long-time brokerage client of 23 years fell ill with dementia in 2014, her son was appointed guardian by the probate court a year later.
“He had to post a bond to be guardian and renew it each year based on the assets,” Valecka said. “I'm helping him submit bank statements so that the beginning and ending balance can be reviewed by the Court.”
Although it’s been a labor of loyalty to the client, Valecka is considering charging future clients depending on whether they are advisory fee or brokerage clients.
“I would suggest that an advisor sit down with the family to discuss how much they want the advisor involved in the process as well as to determine whether there will be hourly billing or a special project planning fee,” Valecka said.
Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at [email protected]