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Financial Advice

Not OK

Why the financial-services industry needs to do better for the financially vulnerable among us.

A few weeks ago on a Friday morning, I was upstairs in my home office when I heard a knock on the front door. On a conference call, I muted my line and headed downstairs. My sister, who has an intellectual disability and lives with us for part of each year, had already opened the door, as she is inclined to do for friends and strangers alike.

On the front step was a nicely dressed woman, holding some folders and a Starbucks cup. I stood alongside my sister and asked the stranger why she was here. She replied that she was here to see my sister about her retirement, as they had previously discussed. I explained that it wasn’t a good time; could she leave behind some materials? She said that it was too involved, that explaining the purpose of her visit would take time. “She is retired, isn’t she?” she asked, gesturing to my sister. I frowned, shook my head, and closed the door.

After I did so, my heart was pounding. Why didn’t I get her card, so I could call her and read her and her superiors the riot act? Why hadn’t I done a better job warning my sister (again) against opening the door for unfamiliar people, even if they look nice? More important, how did this person find out about what my sister and our family have been calling her “retirement”--her decision to stop attending daily programs for people with special needs? And how did she pair that information with our address and decide to pay a home visit? While my sister communicates fairly well and is incredibly social, it’s also clear that she has a disability; had this person willfully ignored those clues and decided to steamroller ahead all the same?

As luck would have it, I got answers to some of those questions a few days later, as the salesperson wrote a thank-you note to my sister for making time to talk to her. As I suspected, she works for a financial-services company, and I soon reached her on the phone. She explained that her recent visit wasn’t the first time at our house; she had previously knocked on our door, talked to my sister, and volunteered to come back with some information on retirement planning and investing. I grilled her further: Couldn’t she tell that my sister wasn’t capable of making financial decisions on her own and therefore it wasn’t appropriate to make a second visit? She began stammering. “She really didn’t say much at all.”

I suggested to the salesperson that she needed to be more sensitive to clues that potential customers might not be able to make sound financial decisions on their own. I told her that I was debating whether to alert Finra, the police, her company headquarters, or all of the above. “But I’m definitely writing about this,” I assured her. I’ll be honest, rather than getting her fired, I wanted to scare her so much that she’d never make a similar mistake again.

As I’ve reflected on this sequence of events, I’m still outraged. Best-case scenario, the salesperson has terrible judgment; worst-case scenario, she was hoping to take advantage of the situation. (Having spoken with her, I suspect it was more of the former.)

I’m also appalled by the fact that the industry as a whole has done such a poor job of imposing standards on individuals purporting to offer financial advice, which in turn reflects poorly on the whole profession. It’s a sad indictment on the industry--and the many ethical advisors who act as fiduciaries and serve their clients so well--that I knew almost instantly that this person was selling financial products, even before her materials arrived in the mail to confirm it. And despite efforts on the part of Finra and other bodies to increase advisor awareness of the interplay between cognitive decline and financial decision-making, there’s still work to be done in this area, especially as our population ages and more individuals experience cognitive impairment.

How can we make sure that things get better? Here’s a short list of ideas.

Stop Going Door to Door I know that door-to-door calls--and, in turn, sales--have historically been the bread and butter of a handful of financial-services firms. But there's just one word for the sales tactic: desperate. Investment salespeople going door to door are banking that the people who open the door for them during the day are lonely and not particularly financial savvy--in other words, they're financially vulnerable. And in this day and age, it's simply not safe--for salespeople or their prospective customers--for people to go door to door to hawk products.

Increase Awareness of Issues Related to Diminished Cognitive Capacity Finra and other entities have done a good job of educating advisors about recognizing signs of diminished cognitive capacity and working with clients who are experiencing it, especially seniors. (A guest blog post by Steve Starnes on Michael Kitces' Nerd's Eye View blog details some of these initiatives, including the Senior Safe Act.) Those are solid developments. But as my family's recent experience illustrates, there's more work to do. Much of Finra's work has focused on helping advisors recognize diminished cognitive capacity as well as signs that such individuals are being financially abused by family members and other people in their lives. In other words, the assumption is that the financial advice-giver is the ethical actor in these situations. But what about unethical behavior and outright financial abuses from inside the financial-services community? Although advisors are held to certain standards depending on how they're regulated, that issue seems to have received less attention. For now, the onus is on the family members and other loved ones of people with diminished cognitive capacity to be on high alert to bad behavior.

Add Guardrails for People in Retirement Finally, the experience detailed above--and the advisor's fixation on my sister's retirement assets--illustrates the unfortunate confluence between our retirement system, cognitive decline, and unethical actors who seek to profit from it. My sister's assets are safeguarded for her in a trust, but many older adults who are experiencing diminished cognitive capacity have no such guardrails. Instead, they're vulnerable to financial predation at a time in their lives when their assets are at their highest and those funds are fully under their control--that is, they've left the confines of a company-provided retirement plan. I don't have a good solution to this problem, but simplifying and adding some guardrails around the retirement-decumulation system are worthy goals.

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