by Liz Skinner
[Ed. Note: I write about fraud recovery and getting money for investors after it has been lost. This story is a verbatim copy of a story written by Liz Skinner at InvestmentNews, one of my favorite publications. Liz discusses how brokers and financial professionals can protect their elderly clients. Her ideas on protecting elderly clients and keeping them from being victims are right on the money. Thank you Liz for allowing us to repost your story*. It’s great information for all of our elderly clients and their families.]
Advisers can be guardians of their elderly clients’ best interests, protecting them from financial fraud in ways that even family members can’t.
“The adviser could be a very important component in the public awareness and prevention side of elder financial abuse,” said Bob Blancato, national coordinator of the Elder Justice Coalition. “It really is about having the knowledge of circumstances to steer older people away from certain situations and having a trusting relationship with that older person.”
Older Americans are financially abused by family members, strangers and businesses to the tune of $2.9 billion a year, according to a study released by MetLife Inc. in June. That sum is 12% higher than the study’s 2008 findings, which estimated that elders were being swindled out of $2.6 billion a year. Both numbers may be underestimating the problem, however, as 80% of cases aren’t reported, according to experts.
But experts say that advisers who regularly review the financial accounts of their elderly clients can pick up changes in spending and investing that even family members might not notice. Older clients also might be more willing to open up to their adviser about financial scams for which they have fallen — even when they’re unwilling to tell their own children.
Additionally, advisers have the financial knowledge to review investment opportunities for older clients who might not understand the risk of certain products.
Senior citizens are especially vulnerable to financial fraud because they may be cognitively impaired or simply confused by complex financial opportunities or products. Research from behavioral economist David Laibson shows that people tend to make poorer financial decisions as they age. They often are lonely and more willing to talk to strangers.
‘FLAGS OF VULNERABILITY’
In about half of elder financial fraud cases reviewed for the MetLife study, the perpetrators were strangers. They often target victims when they are out shopping, driving or managing their financial affairs. The criminals often looked for particular “flags of vulnerability” such as handicapped stickers on cars, canes or looking and acting confused, according to the study, which analyzed news articles about crimes against older people from April to June of 2010.
In about 35% of cases, the perpetrators were individuals whom the victim knew, such as caretakers, handymen, friends, children and neighbors. The thieves took advantage of an opportunity to steal credit cards, forge checks, empty bank accounts, transfer assets and otherwise “decimate elders’ financial safety nets,” according to the MetLife report.
In one case, a 65-year-old woman suffering from dementia was locked in a closet for months by three acquaintances who were living off her money. In another, a son purportedly taking care of his 82-year-old mother cashed her Social Security checks and ignored her needs for care, according to the report.
Attorneys, banks, contractors, accountants and the like were responsible for ripping off older Americans in about 12% of the cases. Although they constituted a small minority, such cases in general involved greater financial losses, the study found.
Signs that an older American is being targeted for financial fraud include efforts to hide recent financial losses, a boost in transactions, or requests to change the names on accounts, said Sandra Timmermann, director of the MetLife Mature Market Institute, which conducted the study.
“These could indicate a “sweetheart scam’ or the financial demands of a neighbor or caregiver,” she said.
Advisers should be aware of signs of forgetfulness or dementia, which can impair a client’s ability to understand the implications of financial losses, Ms. Timmermann said.
Although there are confidentiality and ethical considerations in the relationship between the adviser and client, advisers should report suspicious activity to their supervisor and compliance department, she said.
This already is required by many banks, insurance companies and brokerage firms.
Advisers should be careful about informing clients’ family members and should do so only when they know them and the situation well, as the person behind the fraud might be a family member.
Older women are twice as likely as men to be victims of elder financial abuse, according to the survey.
“Aging is a woman’s issue,” Ms. Timmermann said. “They live longer, they are often the ones living alone and they are probably perceived as more vulnerable.”
LOOK FOR SIGNALS
Advisers should look for signals as they review their clients’ financials and investments, according to Ted Sarenski, president of Blue Ocean Strategic Capital and chairman of the American Institute of Certified Public Accountants’ elder-planning task force.
Any large withdrawals should spark questions, he said.
Or if a client needed $5,000 a month last year and is now requesting $10,000 a month, the adviser should ask why the increase is necessary.
“All financial professionals should watch the trends — the normal habits of their clients — so they can identify changes,” Mr. Sarenski said.
Accountants preparing a client’s tax return also should be on the lookout for fraud.
Once, while doing the taxes of an 80-year-old client, Mr. Sarenski discovered that a broker was churning the man’s account. He spoke to the client’s son, and the man and his wife were reimbursed for the fees that they paid in the excess transactions.
Other signals include unusual spending habits, interest income or dividend income dropping from one year to the next, large home care expenses and suspicious new people in the lives of an elderly client, Mr. Sarenski said.
“The financial community in general must help educate folks as they are aging,” he said. “We must make people aware that these things can happen.”
Lawmakers are beginning to realize that financial services professionals can be effective in identifying and even preventing elder financial abuse.
Worried about the increasing number of scams that target senior citizens, Rep. Joe Baca, D-Calif., in March proposed the Preventing Affinity Scams for Seniors Act of 2011. The bill would require financial institutions to train employees and offer services such as special protective bank accounts to older customers, and to report suspected elder financial scams.
Last month, the Alliance for Investor Education highlighted 10 websites with resources to help older investors and their families detect scams and investment fraud.
The sites are sponsored by the Securities and Exchange Commission, the Financial Industry Regulatory Authority Inc., the North American Securities Administrators Association Inc. and others (investoreducation.org/elderinvest mentfraud).
Some experts theorize that elder financial abuse will be less of a problem for the baby boomer generation because they aren’t as trusting of people as their parents.
“Maybe going forward, the elderly won’t be as trusting and abuse won’t be as big of a problem,” Mr. Sarenski said.
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* Liz’s title was lost but the article is word for word her great writing.