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Aging Clients, Legal Capacity, and Elder Financial Protection: A Securities Attorney's Guide for RIAs and IARs

Speaker: Michelle Atlas-Quinn, Securities Attorney
Original Air Date: September 16, 2026
Run Time: Approximately 105 minutes
Topic Area: IAR Ethics, Fiduciary Responsibility, Aging Clients & Elder Financial Protection

Key Takeaways

• RIAs and IARs have an ongoing fiduciary duty to act in the client's best interest, including when aging, cognitive decline, unusual financial behavior, or suspected exploitation complicates the advisory relationship.
• Financial advisors are not expected to diagnose cognitive impairment or determine legal competency. Their role is to observe behavior, identify changes and red flags, develop a reasonable, fact-based belief, and follow appropriate procedures.
• Warning signs may include memory lapses, confusion about financial decisions, unusual withdrawals, abrupt investment changes, new people exerting financial control, unpaid bills, or behavior that is significantly different from the client's historical patterns.
• Protecting a client does not mean automatically taking away the client's autonomy. An older adult who understands a financial decision generally retains the right to make choices an advisor might consider imprudent.
• Account ownership matters. Individual accounts, IRAs, joint accounts, trusts, and entity accounts can provide very different options when a client begins experiencing capacity issues.
• A custodian's approval of a transaction does not eliminate the advisor's fiduciary responsibility. Advisors and custodians should communicate and work together when suspicious activity arises.
• Trusted contacts can be extremely valuable, but a trusted contact does not have trading or withdrawal authority and is not the same as a power of attorney.
• Powers of attorney should be reviewed and verified before relying upon them, including determining whether the authority is currently effective or subject to additional requirements.
• Privacy remains critical. Regulation S-P can restrict disclosure of client information to unauthorized family members or other third parties, even when the advisor believes those individuals have good intentions.
• Firms should establish clear escalation procedures so employees know what to do when something doesn't seem right.
• Detailed documentation is one of an advisor's most important protections. Record the observations, conversations, transactions, consultations, decisions, and reasoning behind any protective action.
• AI meeting-note tools can improve documentation, but firms should conduct vendor due diligence, review AI-generated notes for accuracy, and remember that retained notes may later become discoverable.

The Advisor's Starting Point: Fiduciary Duty

Michelle returned repeatedly to one central concept throughout the webinar:

Fiduciary duty.

For an investment adviser, the obligation isn't limited to the moment a recommendation is made. It continues throughout the advisory relationship.

Michelle described this as including a duty of care, a duty of loyalty, placing the client's interests above the adviser's own, disclosing conflicts of interest, maintaining transparency, and providing full and fair disclosure of material facts.

These responsibilities become particularly important when an advisor begins noticing changes in an aging client's behavior.

The challenge is that advisors are often dealing with incomplete information.

Is the client simply forgetful?

Are they making an unusual—but perfectly intentional—financial decision?

Is cognitive decline affecting their ability to understand the transaction?

Is someone else exerting undue influence?

Or is the client being financially exploited?

There often isn't an obvious answer.

The goal is to develop a reasonable, good-faith, fact-based belief based on what the advisor actually observes and knows about the client.

You're an Advisor, Not a Doctor

One of the most important distinctions from the session was understanding the advisor's role.

Financial advisors aren't expected to diagnose dementia, Alzheimer's disease, depression, or other medical conditions. Nor are they responsible for making a legal determination that someone is incompetent.

Instead, advisors should observe.

Michelle described competency generally in terms of whether a person can understand, appreciate, and communicate informed decisions about their finances. The ultimate determination of legal competency belongs to the appropriate legal process—not the financial advisor.

What advisors can identify are changes.

For example:

• The client gives an instruction in the morning and doesn't remember it that afternoon.
• A client suddenly doesn't understand basic financial concepts they previously understood.
• Withdrawal patterns change dramatically.
• A new person begins controlling conversations.
• Someone else starts signing documents.
• The client makes financial requests that are dramatically different from their normal behavior.

The question isn't simply, “Is this client old?”

It's more useful to ask:

“Is this behavior significantly different from what I know to be normal for this client?”

Watch for Changes, Not Just Age

Age alone doesn't establish diminished capacity.

A 95-year-old client may remain completely capable of managing complex financial decisions, while a much younger client may experience circumstances that affect their ability to manage their finances.

Because advisors often work with clients for many years, they're in a unique position to recognize changes.

Potential red flags discussed during the webinar included:

• Sudden unexplained withdrawals
• Dramatic changes in investment patterns
• Requests for unfamiliar investments
• Confusion about recent transactions
• Memory problems affecting financial decisions
• A new person taking unusual control over the client's finances
• Unpaid bills despite adequate resources
• Changes in appearance or living conditions
• Social isolation
• Evidence of coercion
• Transaction patterns inconsistent with the client's history

One unusual transaction doesn't necessarily establish exploitation.

The advisor's job is to ask questions and gather facts.

Exploitation vs. An Imprudent Decision

This distinction can be particularly difficult.

Michelle described financial exploitation as generally involving harm coming from someone outside the client, while an imprudent financial decision may involve the client making a poor decision independently.

But adults retain autonomy.

A financially capable 85-year-old is allowed to spend money on an expensive vacation, buy a sports car, give money to grandchildren, or make another decision the advisor wouldn't personally make.

As Michelle explained during the Q&A, advisors aren't their clients' parents.

The challenge is determining when unusual behavior crosses the line into circumstances that warrant further inquiry or protective action.

That requires balancing two important goals:

Protect the client without unnecessarily taking away the client's autonomy.

How the Account Is Titled Matters

When capacity concerns emerge, the structure of the client's accounts can significantly affect what happens next.

An individually owned account or IRA generally requires instructions from the account owner unless another person has valid legal authority, such as a power of attorney or court order.

That can make individual accounts particularly difficult when the owner begins exhibiting serious cognitive problems.

Other account structures may provide additional options.

A trust may identify a successor trustee. Corporate or entity documents may identify another person who can assume authority. Joint accounts can involve different ownership and authority considerations.

Michelle encouraged advisors to understand who actually has authority over each account before a problem occurs.

Your Custodian Is a Partner—But Not a Substitute for Your Responsibility

One particularly memorable case study involved an older client attempting to wire $50,000 to Mexico.

The client had previously lost money in a timeshare scam. He was subsequently contacted by someone claiming to be connected with a Mexican federal agency who told him money could be recovered if he first paid a large registration fee.

The client initiated the wire directly through his custodian.

When the advisory firm's assistant received questions about the transaction, the issue was eventually escalated to the firm's chief compliance officer. The CCO recognized the warning signs and communicated the concerns to the custodian.

The custodian blocked the accounts, involved its fraud team, and took additional protective steps while the firm worked with the client to help him understand that he was being targeted by another scam.

The case demonstrated why escalation procedures matter.

An assistant wasn't expected to independently resolve a potential elder-exploitation case.

The process moved from:

Assistant → Compliance → Custodian → Fraud Review

Michelle's broader point was that advisors should view custodians as potential partners when red flags emerge.

But a custodian's involvement doesn't transfer the advisor's fiduciary responsibility to the custodian.

What About Temporary Holds?

When an advisor reasonably suspects financial exploitation, protective holds may become an option under applicable rules and procedures.

Michelle explained that temporary holds can be available when there is a reasonable belief of financial exploitation, but they aren't automatically required in every suspicious situation.

The advisor needs to follow applicable firm policies, custodian procedures, regulatory requirements, and state law.

And once again:

Document, document, document.

The file should explain the specific facts that caused the concern and the steps taken in response.

State law can significantly affect this analysis, including whether reporting is mandatory or permissive, what immunity may be available, how long a hold may continue, and which agencies must be notified.

That makes the client's state of residence particularly important.

Regulation S-P: Good Intentions Aren't Enough

Imagine an advisor becomes worried about an elderly client.

The client's daughter calls and asks what's happening with Mom's investments.

The advisor knows the daughter. She's responsible, caring, and clearly trying to help.

Can the advisor tell her?

Not necessarily.

Michelle emphasized that good intentions don't override client privacy requirements.

If the daughter isn't properly authorized, sharing private financial information could create a Regulation S-P issue.

The same can be true of a spouse, sibling, neighbor, caregiver, or other family member.

When disclosure is legally permitted for protective purposes, Michelle recommended limiting the information to what is reasonably necessary and documenting why the disclosure was made.

Why Trusted Contacts Matter

One of the simplest proactive steps advisors can take is obtaining trusted-contact information before there's a crisis.

A trusted contact is someone the client has authorized the firm to contact when concerns arise.

Importantly, a trusted contact:

• Doesn't automatically have trading authority.
• Doesn't automatically have withdrawal authority.
• Isn't a power of attorney.
• Isn't automatically a trustee or guardian.

The person simply gives the advisor someone appropriate to contact when circumstances warrant it.

Michelle recommended making trusted contacts part of the normal client process rather than waiting until a client is 85 or 90 and suddenly asking them to identify someone because the advisor is concerned about their capacity.

Making the conversation routine can reduce the feeling that the firm is attempting to take away the client's independence.

And trusted contacts should be reviewed periodically.

Family relationships change. The daughter who was the obvious trusted contact five years ago may no longer be the person the client wants involved today.

A Trusted Contact Is Not a Power of Attorney

The distinction between trusted contacts and powers of attorney is critical.

A trusted contact generally provides someone the advisor can contact when concerns arise.

A power of attorney may give someone legal authority to act on the client's behalf.

But simply receiving a POA doesn't mean the advisor should immediately accept instructions from that person.

Michelle recommended verifying:

• Whether the document is valid
• Whether it is currently effective
• Whether it contains a springing authority
• What powers it actually grants
• Whether additional requirements must be satisfied

If the language isn't clear, advisors may need assistance from compliance professionals or legal counsel and may be able to consult the attorney who prepared the document.

Your Duty Is to the Client—Not the Beneficiaries

Family relationships can make aging-client situations especially complicated.

Adult children may strongly disagree with how Mom or Dad is spending money.

They may believe the advisor should stop distributions or change the investment strategy.

But during the client's lifetime, Michelle emphasized that the advisor's fiduciary duty is owed to the client—not the beneficiaries.

At the same time, beneficiaries can become important after the client's death, particularly when they begin questioning transactions or decisions made during the client's final years.

That's another reason documentation becomes so important.

If an advisor believes a 95-year-old client is completely capable of making a particular decision, Michelle recommended documenting that too.

The file shouldn't contain notes only when something goes wrong.

With the client's permission, involving family members or beneficiaries earlier can sometimes help everyone understand the planning decisions being made and potentially reduce later conflict.

Create an Escalation Process Before You Need It

A receptionist or administrative assistant may be the first person to notice that something has changed.

Maybe a longtime client calls repeatedly asking the same question.

Maybe the client suddenly doesn't recognize the employee they've spoken with for years.

Maybe an unusual withdrawal request comes in.

What should that employee do?

The answer shouldn't be improvised in the moment.

Michelle recommended that firms establish escalation procedures so employees know exactly when and how to raise concerns.

Depending on the organization, the process might move from:

Employee → Advisor → Compliance Officer → CCO → Legal Counsel/Custodian

Policies should identify warning signs and explain the firm's procedures for unusual withdrawals, third-party influence, diminished capacity, inconsistent transaction patterns, potential holds, trusted contacts, and reporting.

Documentation May Be Your Best Protection

Throughout the session, Michelle repeatedly returned to documentation.

When something seems wrong, document:

• What you observed
• When you observed it
• What the client said
• What transactions were requested
• How the behavior differed from the client's history
• Who you consulted
• Whether the custodian was contacted
• Whether a trusted contact was involved
• Whether a report was made
• What decision was ultimately reached
• Why that decision was reasonable

Avoid simply writing, “Client seemed confused.”

Record the facts that caused you to reach that conclusion.

For example, document that the client instructed the firm to make a trade at 10:00 a.m. and called at 1:00 p.m. saying they didn't understand why the trade occurred.

Specific facts help demonstrate that the advisor acted in good faith and followed a reasonable process.

AI Meeting Notes: Helpful, But Be Careful

An interesting question during the webinar involved the growing use of AI meeting assistants and note-taking tools.

These tools could be especially valuable in documenting conversations involving an aging client.

But Michelle identified several important considerations.

Firms should conduct due diligence on the provider and understand whether and how client information is retained.

She also recommended having a person who actually attended the meeting review AI-generated notes before they're placed into the permanent client record.

Why?

AI can make mistakes.

A missing word—particularly something as important as “not”—could completely change the meaning of a client's instruction.

And once those notes are retained in the client file, they may be discoverable during litigation, an enforcement matter, or a beneficiary dispute.

AI-generated notes can therefore be extremely useful—but only if firms have procedures to ensure they're accurate.

Practical Application for RIAs and IARs

Advisors don't need to become medical experts to better protect aging clients.

They do need a process.

Consider incorporating the following into your practice:

• Obtain trusted contacts as part of the normal onboarding process.
• Review trusted contacts during periodic client reviews.
• Understand how each client's accounts are titled.
• Know who has authority over individual, joint, trust, and entity accounts.
• Obtain and appropriately verify powers of attorney.
• Learn your firm's procedures for suspected exploitation or diminished capacity.
• Understand the protective resources offered by your custodian.
• Know which state laws apply based on where your clients reside.
• Train every employee to recognize and escalate potential warning signs.
• Monitor unusual changes in withdrawals and transaction patterns.
• Protect client privacy when family members or other third parties become involved.
• Document specific observations rather than unsupported conclusions.
• Conduct due diligence before using AI meeting assistants or similar technology.
• Review AI-generated notes before placing them into the client record.
• Involve compliance and legal professionals when the facts become unclear.

Perhaps most importantly, don't wait until a client is exhibiting serious cognitive problems to begin these conversations.

Trusted contacts, powers of attorney, family involvement, account authority, and emergency procedures are much easier to discuss when the client is healthy, engaged, and fully capable of expressing how they want future situations handled.

Compliance Note

This summary is provided for educational purposes only and does not constitute legal, regulatory, medical, or compliance advice. Requirements involving vulnerable adults, financial exploitation, temporary holds, privacy, reporting, powers of attorney, trusted contacts, and advisor immunity can vary based on federal law, state law, client residence, firm registration, custodian procedures, and individual facts and circumstances. Advisors should follow their firm's policies and consult appropriate compliance professionals or qualified legal counsel when specific concerns arise.