President Donald Trump brought a lot of attention to dementia testing recently after repeatedly (and curiously) boasting that he “aced” the standard Montreal Cognitive Assessment (MoCA) test, which, as a recent Los Angeles Times column noted, is “a bit like bragging that you passed a sobriety test while sober.”
But perhaps more importantly, despite flying much lower under the radar this week, is a new study from the North American Securities Administrators Association (NASAA). It released a report examining issues related to diminished capacity and cognitive impairment that may affect financial professionals.
The report says that in light of the aging workforce of financial professionals, financial services companies need to be proactive regarding the issue of diminishing capacity to ensure they are providing effective service to clients and compliance with their duties under securities laws, including those related to standards of conduct, supervision, books and records, continuing education and fraud.
The report was based on a series of discussions between state and provincial securities regulators with broker-dealers, investment advisors, and compliance consultants to understand how the industry handles issues related to diminished capacity and cognitive impairment of financial professionals.
“Discussions with industry members and other regulators clearly indicate that firms are encountering financial professionals with diminished capacity or cognitive issues that stem from a variety of factors, including an aging workforce,” said Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities.
The methods and resources used to address sensitive situations where financial professionals exhibited signs of cognitive impairment varied by firm size and structure. The report summarizes how firms are managing these situations through communication, education, and succession planning.
Recognizing red flags
The report identified several areas for firms to consider, including whether appropriate staff are trained to recognize the red flags of diminished capacity and cognitive impairment.
The report notes legal issues to consider include discrimination, medical privacy issues, and unlawful termination lawsuits, which can place the firms, as well as individual managers, at risk of civil actions due to resistance from the representative in question.
In regard to human resource issues, firms indicated that they must carefully balance being respectful to representatives and investor protection. Firms also stated that frequently the representative may be in denial that there is an issue or may realize there is an issue but be unwilling to acknowledge it.
The report also suggested firms encourage or even require all financial professionals to establish a succession plan regardless of age. Those interviewed throughout the industry believe there are roles for regulators to play in identifying the problem and setting guidelines and goals on how to address it.
“Addressing financial professionals with cognitive impairment or diminished capacity requires sensitivity and respectfulness. Each situation will present differently and firms will have varying resources to address these concerns,” notes the report, which was prepared by a working group chaired by Claire McHenry, Deputy Director of the Nebraska Bureau of Securities, within NASAA’s Board-level Committee on Senior Issues and Diminished Capacity, chaired by Deborah Gillis of the New Brunswick Financial & Consumer Services Commission.
Number of impacted advisors unknown
The report said the working group is unable to determine how many financial professionals are currently operating with some level of diminished capacity or cognitive impairment at this time, but notes the financial industry is an aging industry and financial professionals. There’s no reason to believe financial professionals would not experience similar levels of diminished capacity or cognitive impairment as the general population, and per the Alzheimer’s Association, one in 10 people in the U.S. age 65 and older have Alzheimer’s dementia.
Citing Deloitte data, approximately 26% of the securities, commodities, and financial services sales agents are age 55 and older.
“A major part of the solution to this growing issue is to raise awareness with firms about resources that are available, encouraging firms to implement succession plans and offer retirement tools that can be used throughout a representative’s career so there will not be the need for uncomfortable confrontations,” the report concludes.