Advisers must protect elderly from financial fraud

The financial abuse of older people is on the rise.
APR 02, 2017
By  crain-api

As this week's cover story makes clear, the financial abuse of older people is on the rise. The elderly are targeted by fraudsters because they often have a pile of savings and a steady stream of income. Older people are also more prone to cognitive decline, physical disability, isolation and loneliness — all of which leave them susceptible to exploitation. More often than not, that exploitation is perpetrated by a close family member. Elder financial abuse robs victims of their financial security and, even worse, their dignity. Financial advisers — whether they like it or not — are on the front lines of this scourge. That's why it's imperative they learn how to recognize signs that a client may be being victimized.

STRICT POLICIES

Advisers should also have in place strict policies and protocols for how to respond to suspicious behaviors and transactions. Those protocols should include everything from notifying a trusted family member, alerting the proper legal authorities and, if necessary, freezing a client's account. Legislators and regulators also play an important role in empowering advisers to protect their older clients from financial exploitation. In February, the Securities and Exchange Commission approved a Financial Industry Regulatory Authority Inc. rule that requires brokers to make "reasonable efforts" to identify a "trusted contact" for investment accounts. It also allows them to stop disbursing funds from an account and notify the client if the broker suspects fraud. Unfortunately, that rule, which takes effect in February 2018, falls short in one significant regard: it lacks teeth. Specifically, it imposes no penalties on firms that fail to take action.

complying boldly

Therefore it is up to advisers, and the firms they work for, to decide how bold they will be in complying not just with the letter of the rule, but with its spirit. Needless to say, we hope they will err on the side of being overly aggressive. In 2016, four states — Alabama, Indiana, Louisiana and Vermont — approved a rule requiring advisers to notify adult protective services or a similar authority if they suspect elder financial fraud. The rule also offers advisers a safe harbor for reporting suspected abuse and withholding funds. Ten other states are considering a similar rule and we urge all others to follow suit. Only an estimated 2% of incidents of financial exploitation of the elderly is reported, according to research from the National Adult Protective Services Association. Financial advisers can — and should — play a role in raising that number significantly.

Latest News

$29B Lido Advisors expands in Utah with Olympus Wealth Management
$29B Lido Advisors expands in Utah with Olympus Wealth Management

The privately backed RIA's newest partner firm brings $850 million in assets while giving it a new foothold in the Salt Lake City region.

Annuities hit new $223B high in H1 2025, LIMRA says
Annuities hit new $223B high in H1 2025, LIMRA says

The latest preliminary data show $117 billion in second-quarter sales, but hints of a slowdown are emerging.

Alaris Acquisitions CEO: AI-driven staff reductions could boost RIA valuations
Alaris Acquisitions CEO: AI-driven staff reductions could boost RIA valuations

CEO Allen Darby sees a coming shift in M&A dynamics as AI eliminates clerical roles at RIAs, leaving buyers and sellers to negotiate who benefits from the added margin.

Private equity in 401(k)s is 'inevitable,' says Meketa Capital CEO
Private equity in 401(k)s is 'inevitable,' says Meketa Capital CEO

Michael Bell explains how the PE push in retirement plans may benefit investors, why warnings around risks may be overplayed, and what it will take to get plan fiduciaries comfortable with private investments.

IRA rollovers from DC plans to hit $1.15T by 2030, LIMRA says
IRA rollovers from DC plans to hit $1.15T by 2030, LIMRA says

Research highlights the dominant role of workplace retirement plans and breaks down the major factors dictating workers' IRA rollover decisions.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.