Alzheimer's: Who Makes Investment Decisions

by Roya Wolverson

Who’s responsible for the investment decisions of someone with dementia or other forms of diminished mental capacity—the investor, family members, a broker? The law isn’t always clear. Here’s where things stand now.
The law
Financial advisers are “fiduciaries” and legally have to put their clients’ financial interests above their own. Brokers, while not fiduciaries, must give clients a balanced picture of risks, costs and benefits in recommending products. Brokers must also make reasonable efforts to obtain information about a client’s finances, tax status and other factors to inform “reasonable” recommendations. All brokers have to do a “suitability analysis,” says Mary Shapiro, chief executive of the Financial Industry Regulatory Authority.
The gray area
Neither brokers nor other financial advisers are required to figure out if their clients are suffering from dementia or other maladies. Brokers are required to sell only “suitable” investments, but arguments over what is suitable for an aged client have led to lawsuits and arbitration cases.
Protecting yourself and loved ones
Follow the 70-40 rule. When an investor turns 70 or a child turns 40, discuss options such as holding joint accounts with children or assigning power of attorney, says financial adviser Jeff Broadhurst. Consider joining your older relatives at broker meetings, or draft a document that sets out specific investing goals. Some advisers also recommend hiring a money manager to ensure bills are in order.