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What Happens When You Can No Longer Make Investment Decisions on Your Own?

by | Aug 2, 2022 | Uncategorized

Financial Advisor

According to the World Health Organization, nearly 50 million people suffer from dementia which afflicts 10 million more people yearly. Dementia, most often caused by Alzheimer’s, results in progressive cognitive decline, with no apparent signs of when or how it progresses. All that is certain is that it will steadily worsen over time. 

The implication for aging investors is evident, especially those who insist on managing their own investments. At what point will they recognize or accept their diminished “financial capacity”—the capacity to manage money and financial assets in ways that meet a person’s needs and are consistent with their values and self-interest. Will they realize they’re missing things? Will they remember to make critical money moves when necessary? Will they inadvertently make costly mistakes?

Most People Never See It Coming

The challenges of diminished capacity are further exacerbated due to the difficulty most people have in recognizing or accepting it is happening. For older people, it’s their biggest fear, and to be challenged on what they may or may not be able to do can be offensive. That’s especially true with financial decision-making, which they have been doing all their lives. 

Yet, according to studies, one of the first symptoms of early dementia is difficulty in managing personal finances. Until it’s detected by the individuals themselves or others around them, they could be putting their financial security at risk. They could become easy prey for fraudsters. 

While that seems simple enough to understand, the difficulty is identifying at which point a person’s financial capacity begins to decline. Even more challenging is being able to accept it and take appropriate actions, which often occurs after the financial damage is done. 

A Financial Advisor is Your First Line of Defense

Financial advisors occupy a unique position among the different professional sources families have to help them protect their wealth. They have the capability to act as a family’s ‘first responder’ to alert them to possible signs of diminished capacity. Certain red flags, such as multiple or large unscheduled withdrawals, requests to buy or sell securities inconsistent with their investment strategy, forgetting critical conversations, or uncharacteristic emotional outbursts, can alert advisors to potential warning signs. 

A financial advisor’s responsibility is to help clients navigate life’s risks to manage and preserve their wealth. The loss of financial capacity is one such risk, and advisors have a duty to protect clients who may be vulnerable to financial exploitation.  

Do-it-yourself investors may have reasons why they don’t engage financial advisors. They may pride themselves on their DIY capabilities. They may question why they should pay someone else for something they can do themselves. They may have had a bad experience with a financial advisor, or they may not trust anyone else with their money. 

The True Value of a Financial Advisor

It may surprise those reluctant to work with a financial advisor to know that having a solid advisory relationship with a quality advisor is worth about 3% additional investment returns. That’s according to a Vanguard study that measured the value advisors bring to a relationship based on their investment expertise. 

But, in addition to their value as investment strategists, their most significant contribution to clients’ investment returns is their value as an investment coach—one who prevents clients from making costly behavioral mistakes. Behavioral mistakes, such as trying to time the market or chasing performance, are the primary reason the average investor underperforms the market by as much as 4% a year. 

You can say then that the one percent fee a quality advisor earns is not just for investment advice but also for the confidence of knowing that someone you value is looking out for you and your wealth. Once they understand your goals, ambitions, priorities, and investment objectives, they become a partner in your financial success. 

That’s important for safely navigating through life’s challenges, but it can never be more critical should you realize one of your greatest fears—gradually losing your capacity to make sound investment decisions on your own. That may never happen but having the confidence that someone is looking out for you is priceless. 

*The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.. Trivium Point Advisory and LPL Financial are separate entities. Tax and accounting related services offered through Trivium Point Advisory LLC, DBA Trivium Point Advisory, LLC. Trivium Point Advisory is a separate legal entity and not affiliated with LPL Financial. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized tax or legal advice. Please consult your legal advisor regarding your specific situation. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

LPL Financial does not offer tax or legal advice or services

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

This article was prepared by Lexicon Advisor Marketing. This article was prepared for Trivium Point Advisory’s use.

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