• James Robinson CFP

Part 2: Diminished Financial Capacity

Updated: May 29, 2018


Medical Experts agree that impairment in a person’s activities of daily living (ADL) accompanies cognitive and behavioral symptoms that result in the brain’s ability to process information properly. This can and will impact a person ability to make sound financial decisions.

Activities of Daily Living (ADLs)

Bathing: This involves getting into a tub or shower by yourself.

Dressing: Putting on any necessary item of clothing (including undergarments) and any necessary braces, fasteners or artificial limbs.

Transferring: Which means getting into a bed, chair or wheelchair. This could also include help up and down stairs or in and out of a vehicle.

Toileting: you know…Getting to and from the toilet.

Continence: The ability to retain urine or feces until the proper time for their discharge.

Eating: This refers to feeding yourself for daily nutrients. You do not need someone pureeing your food, so it can be eaten or reminders that it is time to eat.

Instrumental Activities of Daily Living (IADLs)

As ADLs measure many key activities needed for independent living. Caregivers use an additional list of daily living activities called Instrumental Activities of Daily Living (IADLs) which includes more complex independent living tasks. Including on this list is:

Memory Care and Stimulation (Alzheimer's and Dementia) ADL. The ability or inability to perform this ADL can be used as a very practical measure of a Senior Citizens ability to handle their financial affairs. When a person cannot handle their personal finances, this is when a caregiver or family member steps in. At this point…vulnerability begins.

Diminished Financial Capacity

The Centers for Disease Control and Prevention (CDC) states that Cognitive decline, ranging from mild cognitive impairment to dementia, can have profound implications for an individual’s overall health and well-being. Older adults and others experiencing cognitive decline may be unable to care for themselves or conduct necessary activities of daily living, such as meal preparation and money management. The inability to manage one’s personal finances is called Diminished Financial Capacity.

Financial Capacity can be defined as financial conceptual knowledge, checkbook management and Bank statement management, Insurance and Investment Management.

Warning Signs of Diminished Financial Capacity

Memory lapses: examples include missing appointments, failing to make a payment. Making multiples of the same payment. Forgetting to bring documents or where documents are located.

Disorganization: examples include mismanaging financial documents, and losing or misplacing bills, statements or other documents.

A decline in checkbook management skills: examples include forgetting to record transactions in the register, incorrectly or incompletely filling out register entries, and incorrectly filling out the payee or amount on a check.

Mathematical mistakes: declining abilities to do basic oral or written math computations, such as making simple change in the grocery store.

Confusion: examples include difficulty understanding basic financial concepts like mortgage, loan or securities; difficult understanding previously understood concepts.

Poor financial judgment: examples include newly found interest in get-rich-quick schemes or radical changes in investment strategy.

Four Steps to Plan for Diminished Financial Capacity and Illness

The Securities and Exchange Commission's (SEC) Office of Investor Education and Advocacy and the Consumer Financial Protection Bureau's (CFPB) Office for Older Americans offer advice for how to prepare for Diminished Financial Capacity and Illness.

  1. Organize important financial documents: Store financial documents in a safe, accessible location. Give copies to trusted loved ones or let them know where to find them.

  2. Provide your financial professionals with trusted emergency contacts: If you work with a financial professional, provide that person with emergency or alternate contact information in case he or she cannot contact you or suspects something is wrong. You may wish to discuss with your financial professional what you would consider to be an "emergency," and specify when he or she may contact someone on your behalf.

  3. Consider creating a durable financial power of attorney: A financial power of attorney gives someone the legal authority to make financial decisions for you if you cannot. A financial power of attorney differs from a health care power of attorney.

  4. Speak up if something goes wrong: If you ever think someone is taking advantage of you, or that you've been the victim of a fraud, speak up. Sadly, sometimes even financial professionals and people we think we can trust commit financial crimes. If this happens to you, you're not alone—and the sooner you let someone know about it, the better chance there is of putting an end to it.

If you have an issue with a financial professional or firm, you can submit a complaint to FINRA at www.finra.org/investors/investor-complaint-center. Investors can also call (301) 590-6500. And senior investors can call the FINRA Securities Helpline for Seniors® toll-free at (844) 574-3577.

If you have an issue with a broker or investment adviser, you can also submit a complaint to FINRA at www.finra.org/complaint. You can also complain to the Securities and Exchange Commission (SEC) at www.sec.gov/complaint.shtml or call (800) SEC-0330.

If you have an issue with a consumer financial product (such as a mortgage or credit card), you can submit a complaint to the CFPB. Visit consumerfinance.gov/complaint or call (855) 411- 2372.


#MedicalExperts #ActivitiesDailyLiving #ADLs #DiminishedFinancialCapacity #Veterans #MilitaryServicemembers #CognitiveImpairment #LongTermCare

Resources and References

National Center for Biotechnology Information, U.S. National Library of Medicine |https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3622716/

Healthy Brain Initiative | Centers for Disease Control and Prevention (CDC) |https://www.cdc.gov/aging/healthybrain/index.htm

Worried Someone You Know May Have Diminished Financial Capacity? Ryan Wilson – AARP |https://blog.aarp.org/2014/11/04/worried-someone-you-know-may-have-diminished-financial-capacity/

Steps to Plan for Diminished Financial Capacity and Illness |http://www.finra.org/investors/highlights/steps-plan-diminished-financial-capacity-and-illness

Investor Bulletin and Consumer Advisory: Planning for Diminished Capacity and Illness |https://www.sec.gov/oiea/investor-alerts-bulletins/ib_illness.html

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