Dicing with death

We all recognise that elderly clients are more likely to be vulnerable. And this can manifest itself in a number of ways. For example, it could be that elderly clients have a generational reserve, or are less likely to challenge advice or someone selling them something. They might feel intimidated by what could be perceived as strong and aggressive sales techniques or they might already have a medical condition, such as Alzheimer’s.

In addition, elderly clients will have accumulated their wealth throughout their lives. So those who are asset rich are attractive to unscrupulous and commission-driven sales people.

However, do we run the risk of treating all elderly clients as infirm? If I was a fit and healthy 80-year-old (my father-in-law was climbing ladders in his 90s and my grandmother rode a bike into her late 80s), I might find it offensive or even ageist to be treated ?as vulnerable. As 50 becomes the ?new 40 and we become fitter and healthier for longer, does our industry produce outcomes for clients that ?are based on their age?

Single-minded

A recent case made me think closely about the way we treat elderly clients and the effects of regulation and commercial risk. A client seeks advice on her affairs. She is fit and healthy. She has an income that meets all of her expenditure needs comfortably and finds that she is accumulating wealth. In addition to a sizeable amount of inherited cash, she has an unencumbered property.

The 79-year-old client is a widow and she inherited wealth from her late husband. Her adult children benefitted from their father’s estate at the time of his death. They are also successful in their own right. In other words, her family are as successful as she had been in her own career. She does not want to gift to her children any further at this stage as she feels that they have enough.

Having considered her needs for long-term care, current estimates suggest that her income will meet ?her requirements. One of her objectives is to maintain control of ?her current assets, despite the inheritance tax consequences. She ?does not like or want trusts, deeming them overly complicated.

As an individual she wants to grow her assets for two reasons:

• She wants to see the money she does not need “work harder”.

• She believes that on death, she will leave more to her beneficiaries.

She is also adamant that she does not want to involve her family at this time.

Risky business

This client poses a number of potential problems for the advisory firm. First, there’s the investment risk. Should a client in their 80s, for example, take risk? On the one hand she clearly does not need to take risk. So her adviser has rightly pointed this out and challenged this desire to “see her money work harder”.

Despite her age, this client does not want to be treated as if she was about to shuffle off the mortal coil – average life expectancy suggests she will live another three years or so. She has invested before, wants to take a balanced approach to her capital assets and does not want to put all of her assets in equities. She clearly understands her capacity for loss and sees her capital pot as something that could be lost without it affecting her quality of life.

I believe the client should be able to take risk. I think it should be clearly noted that the client should sign to accept the advice and that the risk should be commensurate with the client’s attitude to risk and their capacity for loss. Ideally, the family would be involved but the client, because she is not infirm, does not want this. In her eyes, it is her right to be treated as an adult and not a child.

Denying this client the ability to take investment risk is wrong. We would be treating this client as a number, a function of her age, not an individual. This is ageist. The position, however, has a number of risks for ?the advising firm.

Family ban

The fact that the client does not want her family involved is the most obvious. Should the advising firm deny this individual the right to advise herself? Would we treat a hale and hearty 40-year-old the same? Should the advising firm refuse to advise unless the family are involved?

Could it be argued that in some cases the reason for family involvement is not really for the client’s benefit? The reason for involvement is to cover off the advising firm against future complaint and insinuation that they advised her to go into risky assets to justify ongoing advice fees for investment management, for example?

Consider what happens if the client dies suddenly after 12 months. The stock market has tumbled and the estate is less than the amount invested. The estate challenges the advice given. I contend that there is a high chance the adviser would lose if this case went to the ombudsman. This could be summed up on the basis that despite the disclosures, the signed advice, the completed fact find and the client objectives, disclosure does not equal suitability.

This is not the ombudsman’s fault. They would look at each case individually. But I believe they would consider whether a 79-year-old should take risk or not. If there was any contention from the estate that the woman was not as fit and healthy as she stated, it’s likely the adviser would be found against. The default position for all elderly clients is: if they do not need to take risk, they should not do so.

Where does this lead us?

• Not all the same: we do run the risk of treating all elderly clients equally, assuming that they should not take risk, and even if they can and perhaps should, not advising them to do so.

• Executor challenges: elderly clients could be viewed as ‘high risk’ commercially. They are ‘vulnerable’ clients and while they might be happy with the advice, the adviser runs the risk of challenge from the executors. As a business, you may decide not to take on elderly clients given the extra work required to ensure your advice is robust. Or you may not transact unless the family have signed off on the advice as well.

• Charges: if you are time-based, you would charge elderly clients more for the extra time spent with them. This could mean that advice is pushed out of the reach of some clients.?

My view is simple: we should always treat clients as individuals. I am aware of the extra time it takes to deal with ‘perceived’ vulnerable clients and the extra risk that vulnerability can bring.

However, treating our clients as individuals and not just another vulnerable elderly person feels right. One approach risks us shouting at our clients and talking about the weather, treating our clients as a cliché. The other, despite the risks outlined above, produces the best outcome for our client, treating them fairly and most importantly, with dignity.

Matt Phillips is head of private client stream at Broadstone Pensions and Investments