law & ethics
Ignoring the signs of addiction altogether would be a mistake from a legal standpoint.
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Opioid addiction poses moral, legal challenges for financial advisers
Ignoring the signs of addiction altogether would be a mistake from a legal standpoint. Inaction or negligence in the face of financial abuse could spark a lawsuit.
By Greg Iacurci — August 5, 2017
As the scourge of opioid addiction and abuse continues to spread in the U.S., financial advisers must be ready to deal with the fallout.
From an ethical standpoint, addiction to prescription painkillers and other powerful drugs like heroin and fentanyl is similar to other types of addiction, such as gambling or excessive spending, said Dan Candura, founder of Candura Group, which provides ethics training to financial planners.
Fiduciary advisers have a duty of care and loyalty to clients. A client's best interest may not be served by making assets available in a way that helps fuel their child's addiction, Mr. Candura said. Advisers can establish special trusts or arrangements to cut off or limit cash, for the benefit of the client and the addict, he said.
“You can't dump sums of money on someone who'll possibly harm themselves or kill themselves, and with opioids -— it's deadly,” Mr. Candura said.
It would also be difficult to maintain a relationship with a drug-addicted client if the adviser is unable to act in the client's best interest, Mr. Candura said. Producing more income for clients who would use it to hurt themselves puts advisers in a tough position, he said.
Ignoring the signs of addiction altogether also would be a mistake from a legal standpoint. Inaction or negligence in the face of financial abuse — say, if an addict steals from a client's financial accounts to fuel addiction — could be fertile ground for a lawsuit.
“If it hits the client, and money seems to go out in an abusive situation, I'd imagine the civil attorney would pursue that financial adviser in a civil claim,” said Ron Long, director of regulatory affairs and elder client initiatives at Wells Fargo Advisors.
Advisers have a clear responsibility to pay attention to financial abuse of senior citizens. Brokerage executives and securities regulators say instances of elder financial abuse, whether by family members, caretakers or strangers, stemming from the opioid crisis are increasing.
The majority of U.S. states require financial advisers to report suspected elder financial abuse. States vary in how they approach the issue, including the entities to which advisers must report incidents (such as Adult Protective Services) and the consequences of inaction.
Depending on the state, failure to report a suspected incident could subject an adviser to various penalties under state securities rules, ranging from a fine to revocation of an adviser's securities licenses or registration, said Joseph Brady, executive director of the North American Securities Administrators Association.
NASAA offers a training program for registered investment advisers and broker-dealers called Senior$afe, which helps financial professionals recognize and report financial abuse of seniors. Some firms, such as Wells Fargo, which has more than 14,000 registered representatives, rely primarily on their own internal training programs. The company requires brokers to receive annual training and to report all suspected abuse incidents to a centralized team. Of course, smaller firms with fewer resources may not have any formalized procedures in place.
additional red flags
Regulators are conducting research to determine if more is needed to root out opioid-fueled financial exploitation. Judith Shaw, Maine's securities administrator and past president of NASAA, has just begun exploring the subject. She is working with various parties, such as substance-abuse experts, to develop a list of additional red flags for advisers — a child or grandchild moving back home, for example.
In one recently reported incident, an addict convinced his 78-year-old father to take out a $75,000 mortgage on his house to pay for rehab. What the funds were actually used for was not revealed, but it wasn't for rehab.
Advisers also believe financial institutions have a responsibility to promote greater opioid awareness and training, given the scope of the problem. About 36% of advisers have had clients who themselves were addicted or had family members addicted to opioids, according to a recent InvestmentNews survey of more than 400 advisers.
Despite the large number affected, more than 80% of advisers surveyed said they haven't had any training on handling clients' or their families' opioid addictions. Only 3.7% have had formal training or written procedures from their firm, and 4.7% have had formal training through a third party.
“I don't think advisers are prepared for this, as a general industry. It's something that's out of their league without the proper training,” said Anthony Isola, a financial adviser at Ritholtz Wealth Management. “Times are changing. This wasn't a problem 20 years ago.”