Date posted: 01/12/2016 5 min read

The dementia epidemic and financial control

How capable is an ageing population of making complex financial decisions, and what happens when cognitive abilities decline?

In brief

  • Australia has an ageing population with increasing cognitive decline in control of their own SMSFs
  • Accountants should speak with clients about powers of attorney and when an SMSF should be reviewed
  • Women may require mentoring when their partners are no longer capable of managing their SMSFs

By Fiona Crawford

Western nations are facing a dementia epidemic.

Currently in Australia three in ten people over the age of 85 and almost one in ten people over 65, live with dementia. As the population grows and ages, the number of cases of dementia in Australia is expected to increase to almost 900,000 by 2050, according to Alzheimer’s Australia.

In New Zealand, Alzheimer’s Support estimates that dementia currently affects 41,000 people. By 2050 that is expected to reach 147,000 people.

Grappling with a changing regulatory environment and an increasingly complex superannuation landscape is not for the faint hearted.

To make informed decisions requires time-consuming research and a level head — even more so for those many Australians who have set up self-managed superannuation funds (SMSFs). Yet Australia has an ageing population and an increasing incidence of cognitive decline.

In Australia the SMSF sector is the largest superannuation sector by number of funds and asset size, with over 550,000 SMSFs and over 1,000,000 members at 31 March 2015, according to the Australian Taxation Office (ATO). The SMSF sector is rapidly growing with the number of SMSFs increasing by 27 per cent to 31 March 2015. And as at end June 2014, 25.7 per cent of SMSF members were aged over 64, according to the ATO.

This latter statistic begs the questions: how capable are older adults of making complex financial decisions, and do these capabilities change as their cognitive abilities decline? The very essence of planning and managing superannuation is preparing for old age. For most people, concern about retirement saving is ensuring they have enough money to live comfortably.

Few consider the less palatable prospect of losing the ability to make sound financial decisions. Yet face this prospect we must.

Accountants are unprepared to handle the situations they may face on a daily basis. The current educational framework does not provide counselling skills or basic psychology.

Control brings responsibility

According to research undertaken by the ATO, the main reason people establish SMSFs is to have greater control and flexibility over their funds. Underpinning the rapid increase in establishment of SMSFs is the belief by most SMSF members that their SMSF can perform better than their previous fund. SMSF members not only seek to avoid fees from their retail fund, but like being able to make decisions about their future, to feel “in control”.

With control of SMSFs also comes responsibility. Trustees have various legislated obligations in relation to tax, audit and documentation. And to successfully manage their fund they must devise and implement an effective investment strategy. When their fund reaches the benefit phase they must be aware of the rules, be able to calculate pensions and be prepared to be active managers of expenses and assets. Often this role falls to one trustee, also raising questions about what happens if one trustee has the control but can no longer manage the responsibility. According to Matthew Bambrick, Assistant Commissioner, SMSF Segment, Superannuation, ATO, the increasing number of SMSFs combined with an ageing population mean “these issues are a time bomb waiting to go off”.

Recent research funded by Chartered Accountants Australia and New Zealand investigated the decline in financial literacy associated with cognitive ability decline and age. Researchers studied a sample of 424 older individuals managing retirement savings either as trustees of SMSFs or as members of institutional funds to explore the relationship between financial literacy and cognitive functioning.

Those participants of the study who were SMSF trustees considered themselves either to have “a lot of control” (30 per cent) or “complete control” (55 per cent) over how their fund was managed although external advice from an accountant or financial planner was also considered important, with 77 per cent using external advice.

The study found that those reporting dementia symptoms appeared more vulnerable to making poor financial judgments.

Dr Joanne Earl from the School of Psychology at the University of New South Wales says that the findings have important implications for SMSF trustees and members of institutional funds, and in financial literacy intervention design. In particular, there are implications for accountants.

Arthur Favos CA is the Head of Superannuation at Evolv, a Sydney-based practice specialising in SMSFs. He emphasises the importance of forward planning.

“Many SMSF trustees are confident in their ability and active in their fund management. They are always thinking and planning so are more likely to take pre-emptive action,” he says.

While questions about estate planning and enduring powers of attorney may not be part of the conversation when establishing a fund, there will be a time when this is necessary and if the client hasn’t considered it, then the accountant should.

“It may be a cliché”, says Favos, “but the accountant is a trusted adviser and should understand a client’s financial affairs intimately.”

Earl agrees, saying that over the course of the accountant–client relationship, trigger points should be established for when the SMSF should be reviewed. She advises asking the client to identify decision points and exit decisions in advance.

Gender issues

Both Earl and Favos point to a gender issue in SMSF fund trustee roles. The reality is that in many cases the male partner is the main decision maker and the female partner has a passive role. If the husband is no longer in a position to make decisions, the wife faces a steep learning curve.

Earl says that while women’s levels of financial literacy are worse than men’s, there is an exposure effect, so women’s level of knowledge increases as they are more exposed to financial decision making. Women should be encouraged to develop financial literacy and engage in decision making. The accountant has a role to play here too, supporting women with positive reinforcement and being a financial mentor.

But is this how accountants see their role? Liz Westover FCA is the Head of Superannuation at Chartered Accountants Australia and New Zealand. She asks how willing an accountant would be to broach the issue of dementia with a client, particularly considering the sensitivities around the subject. And what if they observed some of the signs?

Telling a client that they are no longer able to manage their financial affairs is akin to telling them they can no longer drive a car. It is, as Favos says “a difficult conversation”, one that Earl says many accountants avoid because of the stigma attached to dementia and because they “don’t want to offend”.


This goes to a wider question about the boundaries of the accountant–client relationship. Dr Amanda Carter is at the University of South Australia and has undertaken research in the emotional aspects of accounting work. She says that daily encounters with clients can include a number of issues traditionally considered outside of the role of an accountant. But because of the trust relationship between accountants and clients, issues of client wellbeing are often raised, usually as a result of negative life events, such as illness and relationship breakdown.

According to Carter, many of the accountants she’s interviewed during her research do not feel comfortable dealing with clients’ personal issues.

“Accountants are unprepared to handle the situations they may face on a daily basis. The current educational framework does not provide counselling skills or basic psychology. Yet, accounting’s role with financial management, and the irrational relationship many people have with money, would indicate that some basic preparation in psychology-counselling would be warranted,” Carter says.

The time bomb is ticking. How do we defuse it? Government responses to the significant challenges that dementia will bring are mostly focused on research and primary health care, at a time when people are increasingly being asked to take on responsibility for their own retirement security. The Australian government launched its National Financial Strategy Action Plan in 2014 but its strategic priorities are targeted towards young people, with delivery, in the main, through the education system. Limited support is offered to those in their senior years, facing critical decisions about their financial wellbeing.

Planning is key

Given that superannuation is all about planning ahead, that at least part of the answer to the issues raised here is planning seems entirely appropriate. Accountants should ensure all SMSF trustees are involved in managing their fund and ask questions about what plans have been made in the event of illness. Who can step in to manage the fund? At what point should the fund management be reviewed?

There is also potential for some training to be given to accountants to prepare them for the counselling role they may face in practice. This presents a challenge for accounting education and for the profession.

For Earl, the issues are bigger than SMSFs and financial management. She argues for ongoing monitoring of cognitive functioning, a regular, accessible check-up that is as simple and stigma-free as having your eyes tested.

If we can face superannuation with maturity, then why not this?

Fiona Crawford is an editor and writer and founding member of

This article was first published in the November 2015 issue of Acuity magazine.