IOSCO Reports on Effects of Mental Decline on Older Investors and Advisers

By Ben Dell’Orto, Spring 2018 IAC Student Intern

The International Organization of Securities Commissions (IOSCO) recently released a report on the threats specific to senior investors.

While the report specifically describes dementia and mild cognitive impairment as ailments affecting the investment judgment of older people, aging takes its toll even without a specific problem. The report describes diminishing “executive control processes,” which are “related to poor decision-making, problem-solving, and planning for the future.”

Though the rate of decline in older individuals varies, these are clearly important skills for dealing with investments. While some research suggests that these issues can be outweighed by the life experiences possessed by older people, much of the research in the area suggests that this age group is at greater risk to exploitation.

Another issue involving the reduced executive control processes is the age of investment advisers themselves. The average age of a financial adviser in the US is 50.9, and that number is increasing, leading to a risk of poor advice. Further, since age may bring more frequent medical issues, there is a greater chance of small and one-person firms being unable to cope with “death, incapacitation or prolonged absence of the sole individual operating the firm.”

The Canadian Securities Administrators Staff found that 37% of its small firms had “either inadequate or no plans to address significant business interruptions and succession issues” which can easily have a negative impact on clients.

Alzheimer’s and other forms of dementia take a more dramatic toll on those with the disease. Dementia damages brain cells, leading to “loss of memory, mood changes, and problems with communication and reasoning,” though the symptoms vary from individual to individual. The diseases is progressive, so while a person might be mildly impaired—and able to function independently with financial capacity—eventually the disease makes it “increasingly difficult and eventually impossible to deal with everyday financial affairs.”

These issues are universal to investors around the world, and they must be addressed. The IOSCO has made guidelines for regulators and financial service providers, which will be discussed in future posts.