Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler talking about the world of money and investing. That’s what we talk about around here. I am joined by Mr. Jim Wood, a certified financial planner. Jim, how are you?
Jim Wood: I am doing well. How are you doing on this fine day?
Financial Planning as You Get Older
PW: Jim, I wanted to talk about something that can be a delicate and difficult subject. One of the things that I don’t talk about a whole lot—and we do have some estate planning videos on our website about things like: what’s a will, what’s a trust, powers of attorney, springing powers of attorney, and those types of things.
But one of the things that we find as we get older, a lot of times cognitive abilities start to fade away. And as I’ve said many times, the unfortunate thing is a lot of just what happens as we get older, our cognitive abilities may fade, but our confidence actually can increase. Have you ever seen that happen with somebody?
JW: Oh, absolutely. I know you’ve hit that on the show and there have been studies and things like that. But yeah, the fact that somebody might actually be losing ability, but becoming more confident in that ability is a double-edged sword that can really nick you.
PW: Yeah. Yeah. Because what ends up happening is you’ll make decisions and you go, “Hey, I think I’m going to make a change in direction because I have so much experience and I’ve been around the block a few times.” And we’ve talked about the Dunning-Kruger effect. You have a little bit of information and all of a sudden it gives somebody an inch and they think they’re a ruler.
But quite often we end up with false confidence is really what it’s called in psychology. But as we age, many times there will be people in our lives and maybe people that aren’t necessarily in our lives a whole lot, but they decide to enter our lives because there is a financial advantage of doing so. There are things that you really want to think about because there is a list of questions.
Actually an attorney that we work with for securities work brought this up. There are lots of rules that you have to deal with when it comes to the securities industry. If you’re doing this work right, you have to disclose a lot of things and talk about a lot of things that may seem a little bit odd. But the regulators want to make sure that the public is protected and that maybe there’s not something that they’re not hearing from the financial advisor.
Questions for Older Clients to Consider
So therefore, we had this conversation and I thought what we would do is, Jim, kind of talk a little bit about from your perspective, what you’ve seen regarding dealing with elderly clients and some of the things that you think that they have to consider or some of the questions that they typically might come up with, because I thought that was an interesting conversation the other day.
JW: Yeah, absolutely. It’s such a multifaceted problem in that every situation is different and something we’re seeing time and time again, people are getting older. We will start working with clients, and so those clients get older and older and then they start to worry about, “Okay, how am I going to handle things in the future with my kids, beneficiaries, and things like that? Who’s going to help me make decisions?” But there’s so many issues that can affect this because there’s the independence issue, “I don’t need anybody’s help.”
PW: Yeah, the shame from feeling that you don’t want to admit necessarily that you’re going through that type of decline. And that varies by the person. Some people are perfectly okay going, “Hey, I need some help.”
But some people, it’s an area of shame and it feels bad and they don’t want to admit that they need help. The interesting thing in the research that I remember seeing was that the more intelligent a person is, the better they are at masking their decline.
It’s better to recognize and admit when you need help.
JW: And a corollary to that is also privacy. Sometimes people just don’t feel comfortable talking about this stuff, even if it’s with loved ones. And it might not even be an independence issue, which is, “I don’t want to share that information” issue.
PW: Yeah. When we talk about money, sometimes that’s a taboo topic. “You’re not supposed to talk about that.”
JW: Absolutely. I was just taking some notes on what comes to mind when I think about all these issues and I just wrote down basically a list of words. The first one was trust. Because relationships are different across the board with people and sometimes they will have absolute trust in kids or another loved one or whatever. Sometimes that trust isn’t there.
Misplaced Trust
Sometimes it’s misplaced too. Maybe there’s trust there, but there shouldn’t be because that person that they think they’re trusting to help them make decisions might not be thinking in terms of their best interest but potentially their own best interest. And that’s the big concern when it comes to the possibility of abuse.
PW: Yeah, it is sad that sometimes money just changes people. And we’ve seen that in all different ways. I mean, I think about lottery winners. It’s just interesting how all of a sudden they’ve won the lottery and not only did they change quite a bit, but they also find that their friends change.
Trust in someone else can often be misplaced.
So a couple of things, and I thought about some of the questions that were asked by this attorney, the questions that they said, “Hey, here are things that you want to be thinking about.” And we’ll just hit a few of these as I think it would be helpful.
But the first question was, “Are you aware of the financial decisions being made on your behalf?” Now, for some people, they’re having decisions, people make decisions for them already. That would come down to when you’re actually sitting down with an attorney, you might be thinking about having a power of attorney to allow somebody to make decisions on your behalf.
We’re not going to play lawyer here, but you’ll have things called springing power of attorney where it springs into force where somebody can make decisions on your behalf, and it may be for healthcare reasons, and it may be for financial reasons. They’re able to make decisions. Because sometimes what happens is you don’t have the ability to decide whether a certain procedure might be done for healthcare purposes.
Many times the doctor actually has to keep you alive. They have no choice in the matter and resuscitates you when you’d rather not be resuscitated. That’s a whole other topic right there too, yeah. So they’re all of those types of things.
Decision Making in Your Best Interests
But the powers of attorney for financial reasons is you may be incapacitated and unable to sign documents. So you want somebody to be able to sign on your behalf. And that’s something to be really thought about. Jim, I don’t know about you, but I’ve had people, clients where they just go, “I don’t have anybody that I trust in that area.”
JW: Oh, absolutely. Yeah. And that’s a concern and that’s a conversation that’s had in terms of who would you want to be able to make decisions for you certainly on a healthcare level and then also on a financial level. And again, it goes back to that trust and it goes back to vulnerability because that can put you in a little bit more vulnerable state. And so it really has to be a relationship there that has some checks and balances if you can work that out with a lawyer, but also somebody that you have a deep trust in.
You need to place authority in the hands of someone who will keep your best interests first.
PW: And here’s another thing to think about, and this is a conversation that you have with the attorney, is talk about working with somebody that is a fiduciary, they must keep your best interest first. Now, there are people that can be fiduciaries in the financial world where in one sense they’re a fiduciary, but they can take that hat off in the sale of products. So you have to be super, super careful that it is a fiduciary at the very, very highest level.
And even that term, let me just say just as this is something that I think is important to understand, is that financial advisors may not even know what’s in your best interest. I mean, I’ve talked about that study that was done a few years ago from Indiana University, and the reason that study was so important is that they found that financial advisors were making mistakes with their own portfolio.
So I think that it’s really good to have an academic type of an approach to investing for that reason so that you look at the academics, the prudent investor rule, which says engaging in trying to pick stocks, time the market, choosing funds based on past performance—which is rampant in the industry—aren’t wise.
Financial Coercion
Choosing investment market segments that is rampant because it sells. Something that did well in the past, it sells because people think, “Oh, it probably did well in the past, so it’s going to do well in the future” because they attribute the good performance due to skill rather than just asset allocation.
Whatever segment of the market happened to do well recently is very likely not going to be the one that will do well in the future.
But when you actually have somebody acting on your behalf in this particular instance, you want to make sure that they’re held to that fiduciary standard. And they have to keep everybody’s best interest first. That would be other heirs to the estate as well. So that’s one of the things that you want to think about.
Second question was, “Do you feel pressured or coerced into giving money or making financial transactions?” You want to talk about that for a second?
JW: Well, not just if somebody can be having undue influence on you that you may still be in control of signing documents and things like that, but there are lots of different ways that you can be pressured into making financial decisions that aren’t in your best interests. I mean, it happens over the phone with phone scams that seniors become victims of because the people on the phone are just so forceful and so intense.
And yeah, “You have to do this and you’re going to do it now.” And people fall victim to this because in general, their whole life, they’ve just trusted people and they’ve been kind of accustomed just to going along and being nice and things like that. But then they can get taken advantage of by somebody who is not acting in their best interests.
That pressure can come from a lot of different directions, whether it’s a scam over the phone or whether it’s somebody who’s a member of the family.
Fearing Abandonment
PW: Keep in mind, when somebody’s trying to get you to make a decision fast, there’s a part of your brain that is actually engaging, which is kind of the flight, fight, freeze. This is where you go into panic mode.
Have you ever been in a panic and you can’t think straight, but then 10 minutes later you’re thinking perfectly clearly? That’s because that’s the way your brain works. And what’s happening is they’re playing on that principle that you can’t even think clearly so you’re just going to go along with something.
A lot of people will go along with something because they depend upon the person that they are actually being coerced by.
For some reason, they’re dependent upon them and they feel if they don’t go along, that person will abandon them. This is real stuff.
I’ve seen it happen over and over again. And it isn’t even necessarily family members. I’ve seen people outside the family that were caretakers and they felt like if they didn’t go along, they’d be abandoned. So this is something that you want to make sure that you deal with your legal counsel as well.
JW: Especially at that time of life when there can be a fair amount of isolation. And if you don’t have that many outlets and then one of those outlets is that person that is trying to take advantage of you puts you in that vulnerable position.
PW: No, that’s a really good point because a lot of times people get isolated. And this is one of the reasons that I’m always trying to get older people to find ways to get them out of the house and with other people.
Yeah, super important. “Have you noticed any unauthorized withdrawals or transactions from your bank accounts?” is another question that was asked. This particular question hits me because one of the things I have is I’ve had friends that are accountants.
Accountants are good people for this type of work, but I’ve had friends of mine that actually charge a service for paying bills and looking at accounts to make sure nothing weird is going on. So I think that’s helpful as well to have somebody maybe as you get older and you can’t do this type of stuff that can do that for you.
Information Access
JW: Well, I think that’s good advice for somebody who’s 18 or 80 in terms if you notice any unauthorized withdrawals or transactions from your bank accounts, you better be following up. “Do you know who has access to your financial documents and personal information?”
In the data-driven world, there’s information everywhere. You fill out a credit card online, you go do social media, whatever, that information is so much out there. But who has enough access to your information to be able to start doing transactions in your name? Can somebody get your Social Security number? Does somebody have your address? Does anybody have an account number?
So again, it’s all about control of that information.
Access to personal information is what can leave you vulnerable.
So making sure you’re in a position where you know who has access and that person isn’t likely to run off with your bank account.
PW: Right. Right. Yeah, it was interesting you say that because my wife and I were talking about people stealing checks and how the technology exists to wipe out the ink on it and change the name of the payee. So you look at that and go, “Wow, there are a lot of ways that we can be taken advantage of.”
“Have you made changes to your will power of attorney or beneficiaries?” was another question asked. I really like that question simply because I’ve had it happen with clients before. And this one, I think, it’s really important to have an advisor that you trust.
But the situation was that the person actually had a couple of children and one decided to try to work their way back into the good graces of the parent. What happened is the parent had a period of lucidity. What they did is they said, “Whoa, whoa, whoa, whoa. Wait a minute. No, this is not what I intended” and actually went back and changed the will. But what if that person did not have that? The person coerced them into making changes.
Update Important Financial Documents
One of the things that you do when you actually set up these financial documents is you make sure that the person is still of sound mind. You’ll find quite often, let me tell you this, we have found with custodians that somebody that would actually hold and handle the account, your investment accounts, a lot of times they won’t take documents that are that old, more than a few years old. And that may sound weird, but often what you want to do is revisit these documents on a pretty frequent basis.
And again, we don’t do this stuff, we don’t sell this stuff so that isn’t where this is coming from. But I’m telling you, this is just from our personal experience as financial people.
Documents that are older than 3, 4, or 5 years may not necessarily be taken by the custodian when it comes down to it.
So you want to update this stuff.
JW: I’ll ask that question, “Do you have a will or trust?” And a person will say, “Oh yeah, we did that 15 years ago.” And they probably don’t even really remember exactly what it says.
Laws potentially have changed, something like that. One thing about this issue I just kind of thought of, it’s kind of the stereotypical movie plot to where a new wife comes in and she’s the evil new wife and she disinherits the kids by getting them to change the will or that type of thing. Unfortunately sometimes that’s real life. Exactly. That stuff like that can happen. And so that’s another way that this can be abused.
PW: Yeah. And what people don’t realize is sometimes what you can do is you can set up a type of trust that actually takes care of a new spouse for their life. And then what happens is the assets revert to the children when that spouse passes away. So just recognize that those types of things are out there and they’re available to be done for that type of estate plan.
Because yeah, a lot of times kids hold resentment because of the fact that somebody comes in, swoops in, and all of a sudden the new spouse’s kids from a previous marriage end up benefiting from all of the assets. So certainly something to think about.
People Want to Take Your Money
Well, now we have gotten into conversations regarding what you do planning-wise as you get older. Sometimes we spend so much time talking about investing, and I find that a lot of times people as they age, sometimes they get pulled in by things and they’ll get emails. They’ll see emails about gold investing, the great collapse, or currency is going to be changing or we’re going to digitize it and the dollar’s going to go away. And you can fall prey to things that are on the internet, certainly.
JW: Yeah. No one is more trusting than seniors, right? They’re just from a generation that isn’t maybe as cynical as younger generations. And so they’re the ones that are liable to get pulled in on this stuff because sometimes it’s just impossible to fathom that they’re bad people out there wanting to take your money.
PW: Yeah, I think that’s certainly true. And not only that, but I often tell people, “Hey look, you don’t think for a second somebody else can pull one over on you because you wouldn’t even consider trying to pull one over on anybody else.” So I think that is so true. Not only cynical.
Typically honest people assume everyone else is just as honest as them.
So another thing, “Are you getting bills or statements or services that you don’t recognize or that you haven’t requested?” And that can be kind of difficult because sometimes you order something, but the name of the company is a little bit different than what you thought it would be because sometimes they go under different names, right?
JW: Oh, right. That’s happened to me on my credit card statement before where I saw something and had to verify it with my wife, “Was this something that you bought or something that I bought that was shipped under a different company’s name or whatever?”
It’s funny because a lot of these, while pertaining to seniors, like I mentioned earlier, really apply to everybody. If you’re getting bills for stuff that you didn’t buy, you probably want to give that some attention.
Automatic Payments
PW: Well, I think that’s a big thing right now in general, is just looking through how many subscriptions have you signed up for, for example, and you’re going, “I don’t even use that anymore” and it just keeps coming out and it’s just a money drain for people because it’s so easy to sign up for something and forget about it.
JW: So much of that is automatic payments, right? You sign up once and automatically they’re just hitting your credit card and it’s not always that easy to cancel. I think companies are making it easier just because of the pressure, but you have to go through six different web pages or do a Google search on the internet to try to figure out, “How do I cancel this service?”
PW: Yeah, for sure. Now another one, “Are you being isolated from family members, friends and support systems?” This is a phenomenal question.
JW: No, no, I would just say that’s exactly kind of where I was coming from, just because it would certainly be the intention of somebody that wants to do this type of elder abuse that they wouldn’t want them communicating with anybody. So they’re going to take them and they’re going to limit it to, “She doesn’t want to talk to family or they’re not answering the phone.” They’re not taking phone calls, taking the phone away, different stuff like that to keep them in a place where they can use them as their own personal ATM without somebody else taking advantage. This does happen.
PW: Yeah. And the thing is, it kind of reminds me of all things cults. Sometimes what we do is we see a cult, they get isolated and go, “How did they ever fall for all of that stuff?” And the reason they fell for all of that stuff is because they had no voices of reason around them and they had nobody saying, “Hey, you may want to think twice about this.”
So often what they will do is they will demonize other people in your family. The reason is if they can demonize those other people, you won’t trust them. And then if they say anything to the contrary regarding what you’re doing, well you don’t trust them because you have been told a lot of things that aren’t true.
Are You Keeping a Close Eye on Your Money?
You see this with kids too. I mean, think about it when you have a marriage breakup and all of a sudden you got mom and dad are broken up and the kids, let’s say they go with one of the parents and then that parent is just tearing apart the other parent and getting the kids against that other parent, and then all of a sudden they don’t trust them. The relationship is broken.
JW: Yeah, that’s exactly right. And unfortunately, I’ve seen this in a not too distant relationship outside my family. That exact thing took place for a guy who’s just an outstanding dad basically lost contact with his children because of that type of thing. And it’s brutal and it happens.
PW: Yeah, it sure does. Another thing that is in here that I like. Not that I like is a bad word, but I think it is a good question. I don’t like the concept, it’s horrible. But have you noticed any sudden changes in financial situation or assets without your knowledge?
Have you seen money go out of the account or large sums of money go out of the account and you weren’t the one who authorized it?
I have actually seen this happen where people that are very, very busy, business owners that are busy and they have actually put people in charge in their company to make decisions and all of a sudden those people made changes. I remember one time actually it happened.
The person actually put somebody else in charge. The person got mad at me thinking that I did something and I said, “I had no choice. When that person did something, I was supposed to listen to them. And I did not know that you did not want this to actually happen.”
It wasn’t the end of the world in this particular instance, but it was enough where they just got upset with me and I say, “No, you actually put this person in charge and you signed all the documents for that person to make decisions on your behalf. And there was no way for me to know, because this was communicated with me.” It was a lesson well learned many, many years ago for me when that happened.
Be Careful Who You Give Authority To
So recognize that sometimes you may be giving authority over to somebody that you may not necessarily want to make big decisions on your behalf. And too often I find that people get too stinking busy and then they abdicate their responsibility regarding their own affairs and then it comes back to bite them.
JW: And to me, this kind of goes back to the idea, “Has anyone recently become overly involved in your financial affairs without a legitimate reason?” So again, I can just see the picture of vulnerable senior and there is family member, caregiver, whomever this person is that just kind of wants to get a wedge in, trying to, “Well, why don’t you give me control over this account and this way I can do this for you?”
Maybe that’s a legitimate reason, but it can get to be more and more. Again, it’s just one of these things that people have to be aware of and has to be watched maybe from multiple angles.
Watch out for yourself.
But if you can’t watch out for yourself sometimes as we get older, then there has to be people out there that are right going to help protect you. And those people have to be on the lookout for these types of things as well.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
