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Mental health can influence investment decisions

Wealth planning beneficial when everything is on the table

Anxiety, dementia and medical impairment need to be addressed to properly plan a wealth-management strategy. (Canadian Press files)</p>

Anxiety, dementia and medical impairment need to be addressed to properly plan a wealth-management strategy. (Canadian Press files)

Hey there, time traveller!
This article was published 2/6/2018 (766 days ago), so information in it may no longer be current.

Just like our physical health, we will struggle with our mental well being at one time or another. According the Canadian Mental Health Association (CMHA), one in five Canadians will experience a mental-health condition in any given year — with anxiety being by far the most common.

And a new study of Canada’s financial advisers shows that these states of mind could have a profoundly negative impact on our financial well being too.

The research, conducted for Bridgehouse Asset Managers by Navigator Ltd, found most advisers encountered clients facing mental-health problems, including 72 per cent with anxiety, 63 per cent with dementia and 54 per cent with depression.

"When Bridgehouse looked at those statistics, our hypothesis was that financial advisers must be experiencing some of these challenges with their clients," says Carol Lynde, president of Bridgehouse Asset Managers.

"Because of that, do mental-illness or mental-health issues affect sound financial decision-making, and if that’s the case, how are advisers dealing with those issues?"

While the study didn’t set out to answer those questions, consider that the very basis of financial planning and investing is rational decision-making with a long-term view of the implications of each decision we make. That’s no easy task, given money often brings out two strong emotions — greed and fear — that warp our ability to make reasonable choices. Plenty of research has been devoted to how these two drivers of markets affect investors — a field called behavioural economics.

"There is so much literature about behavioural economics and investor behaviour, but one of the things we don’t look at is mental health," Lynde says.

Yet, its influence on finances can be significant — just think of someone with a gambling problem and how that might affect a retirement plan. Advisers are often well positioned to recognize potential red flags — like withdrawals from an investment fund — and yet in an awkward spot at the same time.

"If an adviser, for example, suspects there may be substance abuse or problem gambling (affecting someone’s retirement plan), how do you bring up that subject with that person?" Lynde says.

"You likely can’t stop them from what they’re doing, but they should at least understand the impact to their financial plan and their family."

What the Bridgehouse study uncovered is that while advisers could play an important role in helping struggling clients, they lacked some of the tools to help. That’s why it sought the advice of the CMHA.

Yet, this issue is even breaking new ground for mental-health providers, says Adam Wiseman, manager of community mental health with the organization in Toronto, who worked with Bridgehouse as a consultant.

Wiseman says most mental-health organizations and providers tend to focus on Canadians with the most acute need.

"Everyone has mental-health challenges, but when you’re talking about things like schizophrenia or bipolar disorder, people with these illnesses have phenomenally high unemployment rates," he says.

Social stigma and a lack of social support often mean this segment of the population (roughly one to two per cent of all Canadians) struggle economically.

"I don’t want to stigmatize people saying that if you have a mental illness, you’re going to be poor, but that is the reality on the street for a large part of the population we serve."

While more needs to be done to support individuals facing these dire situations, a much larger segment of the population may be experiencing less-acute mental-health issues that could still put them on a slow-burning course for personal and financial disaster, Wiseman adds.

"A lot of people may be encountering mental-health challenges later in life, so they’ve already become established, and that is when they are working through their financial plans with their advisers."

Depression and anxiety — arising from any number of life events, including the death of a spouse or divorce — are undoubtedly impactful in this respect. Even more so, is cognitive decline and dementia with aging.

The impact of age-related neurological disease — like Alzheimer’s disease — on finances is so potentially problematic, it’s one of the first discussions community support workers with the Alzheimer Society of Manitoba have with newly diagnosed individuals and their family.

"We regularly have conversations about the importance of having the proper legal and financial documents in place," says Norma Kirkby, program director at Alzheimer Society of Manitoba.

"When we are interacting with clients, it’s a rare conversation that we don’t ask about those concerns."

Ideally, all Canadian adults — living independently — should have a power of attorney drawn up long before their mental health becomes an issue. But, reality indicates otherwise.

"What we have found is that there is a percentage of the population that has done these things already, but there is a significant number that hasn’t, and families are then left questioning whether they will be able to achieve having a power of attorney," she says.

The problem is this: "If a person is not able to understand the magnitude of what he or she is doing, then a lawyer will not create a power-of-attorney document."

Then, it is up to the courts to decide how an individual’s finances will be managed to support his or her needs. And, Kirby says, that is a much costlier, longer and more complicated legal process than a visit to a lawyer while you’re "cognitively well" to draw up the power of attorney.

Lynde says individuals working with good financial advisers can avoid these problems, because wealth professionals generally help clients develop financial plans that address risks like mental incapacity. To help, Bridgehouse also developed toolkits and checklists — for estate planning and divorce, for instance — to help advisers guide clients going through challenging life events.

"Advisers also told us they’d love a transition kit that they can use for families who may have a family member with dementia, and how they can navigate through the process with that individual."

While more work needs to be done — particularly as hundreds of thousands of boomers enter their 70s and 80s — the work by Bridgehouse is a good start, Wiseman says.

"It’s interesting; since they reached out to us, I’ve rolled up my sleeves and gotten more focused on finance."

And, what he realized is that the role advisers can play shares many similarities with what mental-health providers do when someone is in crisis.

"It’s like, if you break your leg, all of a sudden nothing else matters except your leg."

A mental-health crisis is very similar, because it’s easy to lose sight of your long-term financial well-being and goals.

Be it an adviser, or mental-health provider, Wiseman argues, "we both want them to make an informed choice to do things that are going to be healthy and benefit their goals."


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Updated on Saturday, June 2, 2018 at 9:23 AM CDT: Photo added.

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