The financial exploitation of seniors, especially those with diminished financial capacity, is an urgent issue. How prevalent is this shameful practice? The National Council on Aging estimates that seniors lose an estimated $37 billion annually or more in the U.S.A. The AARP makes this huge number a bit more personal when it estimates the average amount stolen from a retiree at $120,000. The actual loss could be much greater – embarrassment and despondency have been cited as potential reasons for seniors’ reluctance to report these crimes.

Financial advisors may be particularly well-positioned to identify and report suspected financial exploitation against their senior clients. Concerned Financial Advisors can help in least 4 ways:

  • Have a client conversation
  • Respect client privacy
  • Protect yourself legally
  • Learn the red flags

Client Conversation

Like so many other issues in life, the solution often begins with a candid and empathetic conversation. It’s likely that your senior clients are well aware of their vulnerability to fraudsters if they begin to lose mental acuity. What’s all too often missing is an advisor with the care and courage to put the issue empathetically, squarely and transparently on the table. That’s where you come in. Your client dialog could begin with a question as simple as, “What steps have you taken to protect your wealth from scams in case of future illness or impairment?”

Privacy

Privacy is an innate right and legal obligation. Few would argue with the right to privacy. However, what is a Financial Advisor to do when financial exploitation of a senior client is suspected? Federal and state privacy laws may prevent you from reaching out to family members or other trusted advisors to share confidential information. This challenge can be addressed in a direct way in many cases. In compliance with the firm’s policies and procedures, advisors should ask new (and existing) clients to authorize a trusted individual with whom the advisor can discuss suspected financial exploitation in case of a client’s diminished capacity.

Protect Yourself Legally

It’s been said that our country is the most litigious country in the history of man. Among industrialized nations, we have three times more attorneys per 100,000 citizens than our closest runner-up. While the purpose of this blog is not to debate the pros and cons of our attorney per capita score, it is a clarion call for Financial Advisors to protect their own wealth while serving clients. For example, client contracts could include provisions allowing the advisor to refuse to execute transactions where financial exploitation is suspected. A hold harmless clause to protect the Financial Advisor from claims resulting from the advisor’s good faith efforts to prevent frauds against the client should also be considered.

Learn the Red Flags

You are looking for significant changes in financial behaviors. Red flags include, but are not limited to:

  • Unusually frequent or large distributions from accounts,
  • Perceived intrusion by a third party (often family members) in the client’s financial life,
  • New names showing up as authorized parties on Powers of Attorney,
  • Closing of financial accounts for no apparent reason, and
  • A perception that the client is being isolated from long-term, trusted advisors.

Many firms have training classes focused like a laser on spotting red flags.

In closing, client-facing Financial Advisors and other financial professionals may be closer to a client’s finances than anyone else. That gives you a powerful vantage point to look out for financial exploitation, especially if directed at senior, diminished capacity clients. As always, your first step should be with your leadership, compliance team, and/or in-house counsel when your suspicions are aroused.

Disclaimer

The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide legal or financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.