Mr. Iyer: Cognitive Decline, Family Pressure and a Commissioned Annuity
Mr. Iyer, 72, had a mild stroke six months ago. He manages his own bank work but sometimes repeats questions and has forgotten a fixed deposit maturity. His son, who lives with him, wants to move ₹50 lakh from FDs into a 10-year single-premium annuity with a 7-year surrender charge; the adviser would earn 5% commission. Mr. Iyer says, 'Do whatever my son says,' but cannot explain the lock-in or what happens if he needs nursing care. His daughter, who lives in another city, objects. The son says he is protecting his father from advisers who will sell him unsuitable products. Mr. Iyer's monthly pension is ₹40,000 and his expenses are ₹45,000.
1. How should the adviser assess Mr. Iyer's capacity to make this decision?
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Treat Mr. Iyer as the client unless a valid legal arrangement says otherwise. Use open questions: ask him to explain the proposal in his own words, what the lock-in means, what happens if he needs nursing care, and why the annuity is being considered. Note that repeating questions and forgetting a maturity can be warning signs, but they are not by themselves a diagnosis. If his understanding is inconsistent, delay the transaction and suggest a medical opinion on decision-making capacity. Do not let the son's confidence substitute for the client's understanding. Document the conversation objectively, including who was present and what Mr. Iyer said. If there is a registered power of attorney, check its scope and whether it covers investment decisions.
2. What are the suitability and conflict-of-interest issues in the proposed 10-year annuity?
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A 10-year single-premium annuity with a 7-year surrender charge is illiquid and may be unsuitable if Mr. Iyer's health could require nursing care or if his expenses exceed his pension. His expenses are ₹45,000 against a ₹40,000 pension, so he already needs ₹5,000 a month from savings; locking up ₹50 lakh reduces flexibility. The 5% commission is a clear conflict and must be disclosed in writing. The son's motive may be protective, but he is not the client and may have his own interests. The adviser should compare the annuity with a liquid deposit ladder, a smaller annuity and a care reserve. If the product is still considered, show the surrender-value schedule and stress-test a health shock. Do not accept 'do whatever my son says' as informed consent.
3. What should the adviser do if the son produces a power of attorney and the daughter alleges undue influence?
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Verify the power of attorney with the bank or legal counsel and confirm whether it authorises this specific transaction. Even with a valid POA, the adviser should still seek evidence of Mr. Iyer's wishes and capacity, because a POA does not remove the duty to act in the client's best interest. If there is a family dispute, slow the process, document all instructions, and consider a joint meeting or independent legal advice. Do not take sides or disclose confidential information improperly. If there are signs of financial abuse or pressure, follow the firm's vulnerable-client escalation policy and, where appropriate, report to the relevant adult-protection or police authority. The adviser's duty is to the client, not to the family member who is pushing the sale.