Can financial advisers save clients from the financial ravages of opioid addiction?
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Can financial advisers save clients from the financial ravages of opioid addiction?
About 36% of advisers have worked with clients who were addicted or had family members addicted to opioids, according to a recent InvestmentNews survey.
By Greg Iacurci and Elizabeth MacBride — August 5, 2017
Ted 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.”
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 marshall the financial resources to fight it. And in the cases of addicted family members, it's the adviser who sometimes must step in to keep clients from enabling the addict and jeopardizing their own financial security in the process.
“They're kind of on the front lines of seeing a repetitive and disturbing behavior that's unusual from their client,” said Catherine Seeber, a financial adviser at Captrust, who has seen opioid abuse among her client base and witnessed it firsthand through her son, a recovering heroin addict.
What is known as an addiction often starts out as routine treatment for a valid medical condition. Many people who become addicts were first prescribed painkillers legitimately. But dependency and addiction happen astonishingly quickly for some — a person who receives just an 11-day prescription of their first opioid has a 25% chance of being 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 buying pills on the street, or buying other drugs, like heroin. About 2.6 million people are addicted to powerful painkillers like OxyContin and illegal opiates, according to the American Society for Addiction Medicine.
A growing problem
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 of more than 400 advisers. On average, they witnessed or suspected two cases within the past year alone.
"Yesterday, a client whose 20 year old son admitted to a heroin problem in January was found unconscious on the floor in his room. I am trying to find rehab places for them to investigate by calling other clients who are medical professionals.”
"Families have to either take care of these issues financially or let their family members suffer. What a choice.”
"My client's nephew steals from her to buy drugs.”
"A long time client's son in law became addicted. Suddenly, the client's daughter was stealing money my client to pay her bills -- as her husband was blowing through their income. She stole about $250,000.”
"My daughter has an opioid addiction. It's terrible on every level. It sucks away every resource you have. It's never ending!”
"A client addicted to opioids went through her assets in a period of two years. She had to give up the dream home she built as well.”
"I had a client die in his bedroom with a needle in his arm.”
"One client lost a daughter to a heroin overdose at age 24 and they paid a ton of money for rehabs before that. Another is paying more than $100K for rehab for a son right now."
“If I go back 10 years, I can't remember having any” clients or family members with a drug problem, said Joe Wilson, a financial consultant at KBC Financial Services Inc. in Newtown, Pa., one of the many states that has seen a significant uptick in drug overdose deaths within the past few years. “Now, in 2017, I've had three clients [affected] over the past 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 financial 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 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 financial 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, 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.
Rich, poor dilemma
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 financial advisers look for? Sudden or suspicious withdrawals from 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.
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 first round of rehab only after a protracted battle with the insurance company. But the funding for subsequent 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 earmarked 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.
“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.”
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.