These days, if your financial adviser believes you are a victim of financial exploitation, he or she may ask for a trusted contact, such as a relative or friend. Perhaps you’ve decided to liquidate your safe investments and put the proceeds elsewhere. Or a niece you’ve never seen before reappears in your life, demanding money. These are all warning signs that may trigger a reaction from your financial adviser.
Your adviser may also temporarily halt a suspicious disbursement request from you, ensuring that your funds are safe until the problem is resolved. When money leaves an account, it isn’t easy to recover.
A number of laws and regulations are being passed to safeguard seniors’ assets. Elder financial exploitation is becoming more common. Each year, one in five older Americans is victimized by financial exploitation, according to the AARP Public Policy Institute. According to Mark Bauer, a consumer law professor at Stetson University, victims lose $3 billion yearly, with seniors with well-funded retirements being the most vulnerable. He believes that some people may be naive about fraudsters while remaining polite. This combination, according to Bauer, can make people vulnerable to scammers who prey on their trust.
It is possible for older adults to miss red flags of fraud due to mild cognitive impairment, according to Michael Pieciak, president of the North American Securities Administrators Association (NASAA), which represents state securities regulators. Pieciak believes that risk assessment may be impaired. Because vulnerable seniors are more likely to answer the phone when a fraudster cold calls during the day, social isolation plays a role.
Scams range from phony investments to claiming an electric bill is past due or threatening to shut off power and heat unless a senior withdraws and sends money immediately. Callers may inform seniors that they have an unpaid traffic ticket and that their driver’s license could be revoked if they don’t pay. It’s scary for anyone, especially for a senior, Pieciak says.
Based on the belief that financial institutions and professionals are on the front lines of detecting elder financial abuse, Congress, state regulators and legislators, and the financial services industry have adapted and improved laws and rules to help protect seniors and their assets. The changes safeguard seniors while protecting financial professionals from liability for reporting exploitation. It was previously challenging to report violations due to concerns about violating privacy laws by contacting law enforcement or adult protective services.
Suspicions of Financial Abuse Are Being Investigated
Financial professionals are also “doing what’s in their clients’ best interests,” according to Lori Neidel, a compliance lawyer in Columbia, Mo. A trained investment adviser, for example, may be the first to notice suspicious changes in how an older person manages his money.
Congress passed the Senior Safe Act in 2018, which protects financial services professionals who report suspected elder financial abuse to law enforcement from being sued for privacy and other violations, as long as they have been adequately trained. By providing legal protections to the firms and the employees, the Law encourages banks, credit unions, investment advisers, broker-dealers, insurance companies, and agents to offer proper employee training.
A bank teller who notices an elderly customer who is confused about withdrawing money or performing complicated transactions, the teller could alert a superior, who could contact authorities if necessary. The Law, according to Bauer, is an excellent first step, but more needs to be done, with details on training and reporting still being worked out.
So far, 19 states have adopted a NASAA model act that instructs registered investment advisors and brokers to notify a trusted person and place a temporary hold on a client’s account to investigate financial fraud. Details differ by state; for more information, visit nasaa.org and click the “Contact Your Regulator” button. More state legislatures are considering similar rules, according to Pieciak.
The trusted contact differs from durable power of attorney in that it cannot be used for business transactions, and a power of attorney supersedes it. Suppose the adviser notices troubling signs that lead him to believe you are a victim of financial exploitation, such as unexpected withdrawals from your account. In that case, he can contact your trusted point of contact. He must also report any suspected financial abuse to adult protective services, law enforcement, or securities regulators.
Furthermore, if the adviser believes that the contact is the source of the exploitation—for example, an adult child attempting to steal your money—the adviser can bypass the contact and go directly to authorities.
If an elderly client mentions a guaranteed investment he saw on television; If a client wishes to withdraw all of his funds, an adviser may consider this as a possible reason for a temporary hold. Advisors, on the other hand, are not trained to detect cognitive decline. According to Pieciak, if they notice a client confused about his money, they will contact a trusted point of contact.
The temporary account hold time limits vary by state but range from 10 to 30 business days. During the temporary hold, your financial institution will permit legal withdrawals from the account, such as a mortgage payment. The hold is lifted if no fraudulent activity is discovered.
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According to Pieciak, in Texas, where the Law was passed in 2017, advisers referred 100 cases, and 25 investigations were opened. One involved an 88-year-old who was about to be duped out of $30,000. “The law is already paying off,” he says, “and it’s working exactly as we hoped.”
Finra, the brokerage industry’s self-regulatory organization, was the first to develop national standards to protect senior investors. Finra’s two rules, which only apply to broker-dealers, went into effect a few years ago. According to Jim Wrona, a Finra vice president, the rules were established after Finra discovered that investment scams targeting seniors were rising through calls made to the senior helpline.
According to the rules, broker-dealers must obtain a trusted point of contact when clients open new accounts or update existing ones, as well as the ability to do a temporary account hold. The trusted contact rule is also intended to help older clients keep track of their accounts, which can be difficult when they are cognitively impaired. According to Wrona, when older customers lose their phones, broker-dealers may be unable to contact them.
Despite their differing approaches, all of the current rules and laws, according to Pieciak, complement one another. He believes that in the future, the financial industry will seek ways to collaborate to provide consistent guidance and training. It is crucial to get everyone on the same page, he says.
Meanwhile, you can take steps to protect your accounts and the accounts of elderly loved ones. If you receive a call promoting a low-cost stock or other investment, don’t hesitate to say “no, thanks” and hang up. Also, remove your name from solicitation lists to avoid unsolicited sales pitches. You should also register your phone number with the National Do Not Call Registry.
Additionally, you can visit serveourseniors.org and look under “Investors” for tips on protecting your nest egg. Among the recommendations is to be wary of salespeople who use your fear of outliving your savings to sell your investments. Relatives and caregivers should look for red flags in a loved one’s financial behavior, such as frequent cash withdrawals.
Warning Signs of Financial Fraud
When bank and financial firm employees suspect an elderly client is a victim of financial exploitation, they look for the following signs:
- Cash withdrawals or wire transfers that are unusual or repeated
- Making an appearance with unfamiliar and new friends or relatives
- Unusual apprehension or anxiety when visiting the office or making phone calls
- inability to comprehend their financial situation
- Interference from others when attempting to speak directly with the client
- Unexpected changes to financial documents, such as powers of attorney, beneficiaries, wills, or trusts