August 7-11, 2017
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ADVISERS ARE ON THE FRONT LINES OF THE OPIOID EPIDEMIC, HELPING CLIENTS FIGURE OUT HOW TO PAY FOR THE FINANCIAL RAVAGES OF ADDICTION PAGE 10
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AM
MERICAN Can advisers save clients from the financial ravages of opioid addiction? BY GREG IACURCI AND ELIZABETH MACBRIDE
T
ED SARENSKI KNEW SOMETHING WAS WRONG. On its own, the request for an extra $5,000 a month wasn’t particularly worrisome. But the financial adviser’s internal alarm bells went off when his longtime clients, a wealthy couple in their late 50s, said they’d need the cash indefinitely. “That’s the answer I didn’t like,” Mr. Sarenski said. At a subsequent meeting to discuss the request, the husband, through tears, divulged that his 21-year-old son had developed a drug addiction. His drug of choice: heroin. The couple, having already blown through their emergency savings, needed money to pay for the son’s second round of rehab. Mr. Sarenski later learned the couple’s other son, who was 17 at the time, had also developed a drug addiction, to a street version of oxycodone, a powerful pain reliever. The couple has spent about $200,000 over three years fighting their sons’ opioid abuse. That doesn’t take into account financial losses resulting from their youngest son having stolen from them or the cost of unrefunded tuition when both boys dropped out of college. “I don’t think people understand how financially devastating this can be,” said Mr. Sarenski, CEO at Blue Ocean Strategic Capital, based in Syracuse, N.Y. “It could certainly put a dent in even a well-to-do family.”
HIGH GUARDIANS OF HOPES, DREAMS As guardians of financial hopes and dreams, financial advisers are increasingly being drawn into the nation’s opioid crisis. When a client — or, more often, a client’s family member — confronts an addiction, it is often the adviser who must help
12 InvestmentNews | August 7, 2017
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of more than marshall the fi nancial resources to fight it. 400 advisers. And in the cases of addicted family memOn average, they bers, it’s the adviser who sometimes must witnessed or susstep in to keep clients from enabling the pected two cases addict and jeopardizing their own fi nancial within the past security in the process. year alone. “They’re kind of on the front lines of see“If I go back 10 ing a repetitive and disturbing behavior that’s years, I can’t reunusual from their client,” said Catherine member having Seeber, a financial adviser at Captrust, who any” clients or famhas seen opioid abuse among her client base ily members with a and witnessed it firsthand through her son, a drug problem, said recovering heroin addict. Joe Wilson, a finanWhat is known as an addiction, often cial consultant at KBC starts out as routine treatment for a valid Financial Services Inc. medical condition. Many people who become in Newtown, Pa., one of addicts were first prescribed painkillers legitthe many states that has imately. But dependency and addiction hapseen a significant uptick pen astonishingly quickly for some — a perin drug overdose deaths son who receives just an 11-day prescription within the past few years. “Now, in 2017, of their first opioid has a 25% chance of being I’ve had three clients [affected] over the past a user one year later, according to researchers at the University of Arkansas. If those affected can no longer obtain or afford the medication through a doctor, they sometimes turn to buyHAVE YOU EVER HAD ANY ing pills on the street, or buying other CLIENTS OR CLIENTS WITH FAMILY drugs, like heroin. About 2.6 million people are addicted to powerful painMEMBERS WHO SUFFERED FROM killers like OxyContin and illegal opiOPIOID ADDICTION OR ABUSE? ates, according to the American Society for Addiction Medicine. EXCLUSIVE SURVEY A large percentage of financial advisers — 36% — have had clients or clients’ family members who were addicted to opioids, according to an exclusive InvestmentNews survey
OPIOID ADDICTION CAN POSE ETHICAL CHALLENGES FOR ADVISERS BY GREG IACURCI
A
Yes
35.7%
No
64.3%
Hefty price tag: Former DOJ prosecutor Gary Rossi, left, estimates that a pill addiction can cost up to $1,000 a day.
four years that were pretty big and impactful [financially].” Advisers are also positioned to spot signs that a client is being financially exploited by an addict. “Financial exploitation doesn’t travel alone,” said Judith Shaw, securities administrator for the state of Maine. She leads a task force on opioids and elder fi nancial abuse for the North American Securities Administrators Association. “Both [RIAs and broker-dealers] have done a good job at developing protocols to deal with elder financial abuse, generally,” Ms. Shaw added. “But I think we are all just waking up to the fact that there may need to be special consideration given to this particular problem.” Megan Gorman, an adviser with
tion altogether also would be a s the scourge of opioid mistake from a legal standpoint. addiction and abuse continInaction or negligence in the face ues to spread in the U.S., of financial abuse — say, if an adfinancial advisers must be ready to dict steals from a client’s financial deal with the fallout. accounts to fuel addiction — could From an ethical standpoint, be fertile ground for a lawsuit. addiction to prescription painkillers and other powerful drugs like heroin and fentanyl is similar to CIVIL CLAIM other types of addiction, such as “If it hits the client, and money gambling or excessive spending, seems to go out in an abusive said Dan Candura, founder of Cansituation, I’d imagine the civil atdura Group, which provides ethics torney would pursue that financial training to financial planners. adviser in a civil claim,” said Ron Fiduciary advisers have a duty Long, director of regulatory affairs of care and loyalty to clients. A and elder client initiatives at Wells client’s best interest may not be Fargo Advisors. served by making assets Advisers have a clear available in a way that responsibility to pay helps fuel their child’s attention to financial addiction, Mr. Canabuse of senior dura said. Advisers citizens. Brokerage can establish executives and special trusts or securities regulaarrangements tors say instances to cut off or limit of elder financial cash, for the beneabuse, whether fit of the client and by family memthe addict, he said. bers, caretakers or “You can’t dump strangers, stemming sums of money on somefrom the opioid crisis are DAN CANDURA one who’ll possibly harm increasing. themselves or kill themselves, and The majority of U.S. states with opioids — it’s deadly,” Mr. require financial advisers to report Candura said. suspected elder financial abuse. It would also be difficult to States vary in how they approach maintain a relationship with a the issue, including the entities drug-addicted client if the adviser to which advisers must report is unable to act in the client’s incidents (such as Adult Protective best interest, Mr. Candura said. Services) and the consequences Producing more income for clients of inaction. who would use it to hurt themDepending on the state, failure selves puts advisers in a tough to report a suspected incident position, he said. could subject an adviser to various Ignoring the signs of addicpenalties under state securities
San Francisco-based Chequers Financial Management, which manages about $180 million, said addictions are particularly devastating for families because they see their loved one’s integrity slipping away. “There’s something about it that’s very secretive,” she said. Ms. Gorman recently worked with a wealthy client whose stepson had become dependent on opioids. “[Addicts] will do anything to get their hands on drugs,” she said. “They become manipulative and skilled at hiding fi nancial transactions.” Ms. Gorman counseled the client to stop bills and statements from coming to the house, so the stepson no longer had access to account numbers. She also advised the client to change the terms of a trust that affected the stepson’s inheritance. Fueled by opioid abuse, drug overdoses killed more than 52,000 in the U.S. in 2015,
rules, ranging from a fine to revoincident, an addict convinced his cation of an adviser’s securities 78-year-old father to take out a licenses or registration, said $75,000 mortgage on his house Joseph Brady, executive director to pay for rehab. What the funds of the North American Securities were actually used for was not Administrators Association. revealed, but it wasn’t for rehab. NASAA offers a training program for registered investment AWARENESS AND TRAINING advisers and broker-dealers called Advisers also believe financial Senior$afe, which helps financial institutions have a responsibility professionals recognize and to promote greater opioid report financial abuse awareness and training, of seniors. Some given the scope of the firms, such as Wells problem. About 36% Fargo, which of advisers have has more than had clients who 14,000 registered themselves were representatives, addicted or had rely primarily on family members their own internal addicted to opioids, training programs. according to a recent The company requires InvestmentNews brokers to receive annual survey of more than 400 RON LONG training and to report all advisers. suspected abuse incidents Despite the large to a centralized team. Of course, number affected, more than 80% smaller firms with fewer resourcof advisers surveyed said they haes may not have any formalized ven’t had any training on handling procedures in place. clients’ or their families’ opioid addictions. Only 37% have had formal training or written proceADDITIONAL RED FLAGS dures from their firm, and 4.7% Regulators are conducting have had formal training through a research to determine if more is third party. needed to root out opioid-fueled “I don’t think advisers are prefinancial exploitation. Judith Shaw, pared for this, as a general industry. Maine’s securities administrator It’s something that’s out of their and past president of NASAA, has league without the proper training,” just begun exploring the subsaid Anthony Isola, a financial advisject. She is working with various er at Ritholtz Wealth Management. parties, such as substance-abuse “Times are changing. This wasn’t a experts, to develop a list of addiproblem 20 years ago.” tional red flags for advisers — a child or grandchild moving back
[email protected] home, for example. Twitter: @gregiacurci In one recently reported
14 InvestmentNews | August 7, 2017
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“FROM AN ADVISER’S STANDPOINT, THAT’S ONE OF THE THINGS YOU LOSE: THE MONEY YOU MAKE YOUR LIVING ON.”
the last year for which figures are available and a number approaching the American casualties in the entire eight-year Vietnam War. The epidemic is changing the trajectories of millions of families, many of them served by financial advisers. NO SOCIO-ECONOMIC BOUNDARIES Indeed, opioid addiction crosses socioeconomic boundaries. A recent analysis of 205 million insurance claims by healthcare information firm Amino found that 1.4 million privately insured patients were diagnosed with opioid use disorder in 2016 — a staggering sixfold increase since 2012. Again, these were privately insured patients, which shows the crisis has spread far beyond the poor. The economic impact of the crisis is only now becoming apparent. Using recently released economic reports, InvestmentNews worked with researchers and a former prosecutor to estimate how much the addiction could cost families. Feeding a pill addiction costs up to $1,000 a day, depending on how many of the pills the addict needs and whether he or she can get insurance to cover some or all of them, former Department of Justice prosecutor Gene Rossi estimated. Opioids cost about $1 per milligram, and addicts might need 300 to 900 milligrams a day, according to Mr. Rossi. COSTS ARE HIGH For families struggling to save a loved one dependent on opioids, the costs are also high. In 2013, it cost a family including an individual with a prescription-opioid-use disorder on average $25,501 in lost wages and expenses for health care and substance abuse treatment, according to a recent study by the National Center for Injury Prevention and Control. A heroin user cost society about $45,000 in 2015, researchers at the University of Chicago Illinois found. What should fi nancial advisers look for? Sudden or suspicious withdrawals from
ONE FAMILY’S STORY OF ADDICTION AND FINDING THEIR WAY OUT BY ELIZABETH MACBRIDE
C
SCOTT BISHOP, PARTNER, STA WEALTH MANAGEMENT
portfolio accounts indicate clients might be dealing with an addiction to opioids — either their own or a family member’s. But there are other tells. Erratic behavior, unusual spending or abrupt changes to family structures, like divorce or an adult child moving back home, are all signs of a possible problem. So too is a decrease in communication or the sudden interest of family members in a client’s finances. “The pattern is almost 100% identical and repeatable,” said Ms. Seeber, who is based in Wilmington, Del.
treatments, about $150,000 in total, came entirely out of the clients’ pockets. Rather than have the couple dip into retirement savings, Mr. Sarenski recommended the family borrow against multiple life insurance policies for the cash. Without these policies, the clients would have had to raid 401(k) accounts and other savings ear-
A CHRONIC FINANCIAL DRAIN? To be sure, breaking free from an opioid addiction is difficult. It’s a process that could be a lifelong drain on clients’ savings. One of the sons of Ted Sarenski’s clients, now 24 years old, has done four stints in rehab to treat his heroin addiction. The relapse rates for addicts are so high that relapse is often seen as inevitable, according to a landmark 2012 study by the National Center on Addiction and Substance Abuse at Columbia University. Many doctors see addiction as a chronic illness and expect the relapses, according to the American Society of Addiction Medicine. Insurance companies, however, rarely treat addiction as a chronic illness. In the case of Mr. Sarenski’s clients, health insurance covered the fi rst round of rehab only after a protracted battle with the insurance company. But the funding for subsequent
athy was on the back stoop again, smoking cigarettes and talking on the phone. “I will never steal from my parents,” her mother heard her say. That was the moment Lauri Ploch allowed herself to recognize the truth. Sure, Cathy’s rent had gone unpaid. There were the overdraft notices and the unexplained absences from work. But it was that word — “steal” — that told Ms. Ploch that her 26-year-old daughter was a heroin addict. If there’s a classic hallmark of an opioid addiction, it’s stealing. Opioid addiction steals from everyone it touches. It steals from those who become hooked on the
marked for retirement. It altered the clients’ original estate plan, burning through part of the inheritance the couple intended to leave for their children. Heavy borrowing from life insurance also means a high potential for lapsing the policies in the future, and paying some hefty capital gains taxes as a result.
HAVE YOU HAD ANY TRAINING ON HANDLING CLIENTS’ OR THEIR FAMILIES’ OPIOID ADDICTION? 4.7%
3.7%
10%
81.7%
Yes, formal training through a third party
Yes, training or written procedures provided by my firm
Yes, informal training or unwritten procedures
No
Percentages may not total 100 due to rounding.
euphoria that drugs like OxyContin, Vicodin, morphine and heroin produce. It steals from addicts’ families, many of whom will deplete their life savings to avoid seeing the person they love on the death roll that is unique to this particular addiction. “More people will die because of the limited financial ability of families,” said Ms. Ploch. “Some are too proud to ask for help. Some are still stigmatized … they will spiral into debt themselves. They’ll use every available resource. They’ll get the second mortgage. They’ll dip into their retirement funds.”
at work. Her boyfriend had a prescription for an opioid painkiller that he used to treat a back injury. By the time Ms. Ploch overheard her conversation, Cathy had moved from pills to heroin. As Cathy came in the house that evening, Ms. Ploch confronted her. “What is going on?” she asked. Her daughter ran into her bedroom. Ms. Ploch followed. “Just say it.” “It’s heroin,” Cathy said. Ms. Ploch took her daughter in her arms. “This is going to be a blink of time in the span of your life,” she said. “I promise we will get you through this.”
FUNDING REHAB
After learning of her daughter’s addiction, one of the first calls Ms. Ploch made was to her accountant. The expense of sending their daughter to a rehabilitation program would come from the nest egg she and her husband had built up. Cathy’s descent into heroin addiction was a familiar one. It began with a neck injury she sustained
HITTING BOTTOM
For a time, Ms. Ploch and her husband slept in sight of the front door so they could prevent their daughter from leaving in the middle of the night. Eventually, the Plochs heeded the advice of a drug counselor. They would let their daughter hit bottom. While they waited, they lined up a bed in a rehabilitation facility in Atlanta. The cost for a three-month stint: $18,000. A few months later, the call they were waiting for came. “I’m
ready,” Cathy said. Ms. Ploch picked her daughter up from the flophouse she was living in and the couple drove her 11 hours to Atlanta. Flash forward four years and the Plochs estimate they spent $50,000 to get their daughter back. They recently retired and informed her — on the advice of a financial adviser and drug counselors — that she was on her own financially if she relapsed. A LIFE RESTORED
The calendar on the wall in Ms. Ploch’s kitchen is open to a page that reads: “Trust your intuitive heart.” With luck, tenacity, and the help of a handful of trusted advisers — including her financial adviser — the Plochs were able to navigate a path out of addiction for their daughter. “You can love a person to death,” Ms. Ploch said. “You can support them, you can enable them, but if you don’t fix them, if you don’t send them to long-term rehab and they don’t become involved in a program, then they’re doomed.” Elizabeth MacBride is a contributing editor to InvestmentNews.
Cathy Ploch when she was a little girl (far left), a young adult (center) and recently with her parents.
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“Luckily they’re somewhat well-to-do and could afford this,” Mr. Sarenski said of the couple, who have a $6 million estate. “The average person would be ruining their own retirement to pay for this. And they’re going to pay, because they don’t want their child to die.” ANOTHER COUPLE’S SAGA Scott Bishop, a financial adviser in Houston, saw one of his client couples spend nearly $200,000 as a result of their son’s addiction. The bulk of the money went to legal fees to fight for the guardianship of their son’s infant daughter, whose mother was also a drug addict. Because their granddaughter has a learning disability, the clients, an older couple, also paid for tutors, speech pathologists and special private schooling. “They were much older and raising a young child,” said Mr. Bishop, a partner at STA Wealth Management. “No one puts that in their financial plan, especially when your kids are in their 30s.” SPECIAL-NEEDS TRUST Mr. Bishop helped the couple set up a special-needs trust for their granddaughter. Life insurance will fund the trust at the client’s death and leave an inheritance for the girl. The trust will be managed by a professional trustee to help care for her financially without affecting any state aid she is entitled to. He also introduced the client to attorneys who helped secure guardianship. But Mr. Bishop said he felt more like a therapist than a financial adviser. Other advisers say opioid-related issues bring an extreme level of behavior management and psychology to the client relationship. Mr. Bishop no longer works with the couple, due to circumstances related to the breakup of his previous advisory firm. But continuing to work with them would have been difficult, anyway, as the couple had depleted their assets well below his $1 million minimum asset threshold. “From an adviser’s standpoint, that’s one of the things you lose: the money you’re making your living on,” Mr. Bishop said. Few advisers are trained to cope with the emotional havoc that addiction — any addiction — brings to a family. That said, those who do support their clients through such a crisis are likely to gain the trust and loyalty of that client for years to come. “If you help them get through this, clients won’t care that the Dow fell 20%,” said Anthony Isola, a financial adviser at Ritholtz Wealth Management.
Elizabeth MacBride is a contributing editor to InvestmentNews.
[email protected] Twitter: @gregiacurci
August 7, 2017 | InvestmentNews 15
AMONG YOUR CLIENTS WHO HAVE BEEN DIRECTLY AFFECTED BY OPIOID ABUSE, HOW HAS THE PROBLEM IMPACTED THEIR FINANCES?
Cost of treatment
54.8%
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Disrupted financial plan
Credit issues
income for their clients.
Cash flow (lost wages)
Legal costs
Unpaid bills
Fraud/abuse
CREATED BY 45+ OF THE TOP RETIREMENT PLANNING EXPERTS IN THE COUNTRY.
32.9%
52.7%
32.9%
32.9%
32.2%
30.1%
Increase in expensive behaviors (e.g., smoking)
Overdraft of accounts
Unusual purchases
Loss of inheritance
Bankruptcy
Second mortgages
DAVID A. LITTELL JD, ChFC ®
22.6%
27.4%
19.9%
17.8%
10.3%
9.6%
WADE D. PFAU PHD, CFA ®
JAMIE HOPKINS ESQ., MBA, LLM, CLU , RICP ®
SHOULD ADVISERS BE RESPONSIBLE FOR REPORTING SUSPECTED FINANCIAL ABUSE TO AN OUTSIDE AUTHORITY? 39.6% 34.3% 26.1%
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