How to manage your parents’ finances when they no longer can
Interview by Nompu Siziba with Hardi Swart, CFP®
Publication: 3 September 2019, Moneyweb
‘Do not dictate to them… Always keep the conversation casual, and put their needs first.’
Listen to the interview podcast: How to manage your parents’ finances when they no longer can on SAfm Market Update with Moneyweb. Click on the link: http://ow.ly/uv4E50wLr3w.
NOMPU SIZIBA: Old age is a reality, and with it can come ill health, physical and mental. Circumstances can arise when the elderly are not able to take care of their own finances. So, it would be important that someone who has their back or whom they trust can take over those affairs for them.
So, what’s the process? Who should take care of their finances, and do you ensure that a person that’s put in that position doesn’t abuse it? To tell us more I’m joined on the line by Hardi Swart, who is a director at Autus Private Clients. Thanks very much for joining us, Hardi. For some it may be a touchy subject to discuss with their parent about what should happen in the event of their death, and even what happens if they are not longer able to deal with finances, for example. So, unless you are fortunate to have a forthcoming parent who starts that conversation with you, how do you broach it?
HARDI SWART: Good evening. Yes, it’s a very difficult and a very sensitive conversation to have. I don’t necessarily think there is a best time to have to have the conversation, but there must be a couple of trouble signs that your parents might be losing track of their financial affairs. Examples of these might be is they start having difficulty with simple, mundane tasks, like paying their monthly bills, or they become oblivious about their cash and there is unopened mail in the house, and it just starts stacking up. Or if they are continually complaining about not having enough money, even though you know they’ve got a good pension that’s providing them with a solid source of income. Those are sort of the main signs that you need to start concerning yourself about your parents’ finances.
NOMPU SIZIBA: In terms of the family – say, you come from a big family – what does the family do to designate a person to look after their parents’ finances? What qualities must that individual have in order to do that?
HARDI SWART: I think the first thing is that it’s very important to have a clear picture of what exactly your are dealing with, and you need to determine how much help your parents really need.
Then you need to identify what specific areas they need help in. I can’t really speculate or say that there is one specific attribute that will qualify you as the best person for the role, but I think each family knows who is the logical person that has the ability to work with the parents, give them the right advice.
NOMPU SIZIBA: Tell us about the power of a power of attorney, and what basically it means in terms of the fiduciary duties of the individual who has that.
HARDI SWART: Sure. The things that a power of attorney provides you with is the power to make decisions on behalf of your parents. It’s a very powerful document that should be kept in a very safe place, and only be used in extreme circumstances, and where the parents can’t make decisions on their own any more. The fiduciary duty that is bestowed on the person who is given the power of attorney is really to act on behalf of those family members, of those parents of yours, in order to make the right financial decisions in order to put them in a better position than they are currently in.
NOMPU SIZIBA: And then how does an adult child take control of their parent or parents’ affairs, while at the same time giving them that sense of respect, dignity and even a feeling of control?
HARDI SWART: I think the first step is to collaborate with them, perhaps. Do not dictate to them what you think or what your opinion is. Always keep the conversation casual, and put their needs first. The moment you approach them with a humility, and you say, “Listen, this is really about what’s best for you,” I think that changes the narrative and creates a platform where a good conversation can be held. So, focus on what their needs are.
NOMPU SIZIBA: In terms of a financial planner or a financial advisor, how important is that individual in this whole type of scenario?
HARDI SWART: I think a special financial planner could add a lot of value in this scenario, because they have the ability to do a difficult job, and a lot of these financial concepts are very difficult to understand for a layman. So, a good financial planner will have the ability to communicate this in layman’s terms, and then also be objective in the approach, to give them advice without necessarily being emotionally involved in the whole process. There is a lot of value in taking a financial planner. Also, the ability to help them with tax planning, and a lot of these complex sort of things that come together with retirement or old age.
NOMPU SIZIBA: Very importantly, Hardi, the issues that I raised in the introduction, how do you ensure that the person that’s been entrusted with this very important responsibility – you talked about how powerful the power of attorney document is – how do you ensure that they don’t abuse their position and run off to Jamaica with the money?
HARDI SWART: That’s always a concern. I believe it’s important to invest into a quality diversified portfolio, and to make use of a reputable service provider with a proven track record to provide you with stability and security. There are a lot of really amazing companies out there that are all governed by the FSCA, the Financial Services Conduct Authority of South Africa. So, I think it’s very important to make sure that the individual you are using or the accountant you are using is licensed to give the advice that they are giving you, or to deliver the product they are delivering, and also that they disclose everything up front to you. Be 100% certain what to expect in this whole process.
NOMPU SIZIBA: That’s a good answer, but I was actually asking about the person who holds the power of attorney. I’ve been trusted to take care of my mother’s affairs, but then if, for whatever reason, I start abusing my position, what does the law say about that, and how can it intervene – who must intervene?
HARDI SWART: That’s a difficult one. The best person to intervene, probably, would be fellow family members who can see what’s happening, because, more often than not, these elderly parents don’t have the ability to identify that these people are misusing their funds. I think that would be role of fellow family members. And, if something like that does happen, I think the logical place to report it would be the police, about somebody who is really misconducting the funds.
NOMPU SIZIBA: Hardi, thank you very much, sir, for your time.
Hardi Swart, CFP®, is the Managing Director of Autus Private Clients and 2019/20 FPI Financial Planner of the year.
Contact Hardi Swart at email@example.com or 086 107 7789.