Nov. 25, 2013 9:24 a.m. ET
The clients were a couple in their early 70s. The husband had handled all of the financial planning and investing decisions.
But after receiving a diagnosis of Alzheimer's disease early last year, the couple realized they needed a new plan to address his increasing dementia.
They sought the advice of adviser Thomas E. Murphy, a partner at Murphy & Sylvest, which manages just less than $80 million for 123 clients in Dallas. "I told the client that I had personal experience with dementia and that although we couldn't tell what was going to happen, we needed to plan for the inevitability that something would happen," he says.
As Mr. Murphy began working with the clients, it became clear that the husband was having difficulty giving up control of his finances. He had always made decisions by himself and worked directly with his own stockbroker, so he wasn't keen on hearing an adviser's suggestions or asking someone else to make investment moves on his behalf. So Mr. Murphy set up procedures to ensure the man stuck with the new program.
First, the adviser got permission to speak with the couple's attorney. He made sure that the couple had given the wife power of attorney, health-care power of attorney and a declaration of guardianship, which covers Alzheimer's in the state of Texas.
Next, the adviser told the man he must include his wife in all financial discussions and have her sign off on any decisions. "I insisted on an agreement up-front where I would tell his spouse everything and get her to sign off on it," he says.
By emphasizing the wife's need to be informed, the adviser could protect the man from making poor decisions without calling his mental capacity into question--a technique the adviser has successfully used with other incapacitated clients. And because she had power of attorney, her signature provided a safety net to ensure transactions would still be valid should her husband be declared incompetent later.
As the client's dementia progressed, he began to become more confused during the decision-making process. He would repeatedly ask the same questions about a plan, which delayed execution while Mr. Murphy explained the details again.
To help the client understand and retain the details of his financial decisions, Mr. Murphy began writing a letter of instruction whenever he and his client made a plan that required professional action. Those letters detailed the steps the adviser would take to fulfill the client's wishes, and requires a signature from the husband and his wife.
Mr. Murphy notes that it was important to break down each decision into discreet components and explain each step he would take to execute the client's wishes. "Otherwise there's too much information and he's not able to process it," he says.
For example, when the client wanted to sell some stock to make a real-estate investment, Mr. Murphy wrote down exactly which stocks needed to be sold to remind the husband of their decision. Next, the adviser asked the wife separately if she was okay with the sale, and had both sign off on the sale in a letter of instruction that was sent to the client's stockbroker.
With these measures in the place, the client can continue making safeguarded decisions until his dementia no longer allows it, Mr. Murphy says. At that point, his wife should be in good shape to make informed decisions, thanks to her increased involvement in the couple's finances over the past year.
"Equally important, the husband may let go more willingly once he realizes others can handle those things which only he managed before," Mr. Murphy says.
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