Investment advisors might be among the best-positioned people to spot signs indicating that an older client is the victim of financial abuse, but once their suspicions are up, how are they supposed to respond?
Talking directly with the client might be the first step, but sometimes that can only raise the advisor’s concerns even further. For any number of reasons, a client suffering from financial exploitation might not tell their advisor the whole story. They could be cognitively impaired. They could be afraid. They could...
Investment advisors might be among the best-positioned people to spot signs indicating that an older client is the victim of financial abuse, but once their suspicions are up, how are they supposed to respond?
AARP estimates that older Americans lose $28.3 billion annually to financial exploitation.
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Talking directly with the client might be the first step, but sometimes that can only raise the advisor’s concerns even further. For any number of reasons, a client suffering from financial exploitation might not tell their advisor the whole story. They could be cognitively impaired. They could be afraid. They could become defensive if they are convinced that everything is fine and that the caretaker, relative, neighbor—whoever might be committing the abuse—isn’t in fact exploiting them.
But if the advisor continues to believe that something isn’t right, what should they do?
A five-year-old federal law, the Senior Safe Act, established civil liability protections for advisors and other qualified financial entities who report suspected financial abuse to law enforcement authorities, government agencies, or adult protective services.
That means, for instance, that an advisor who believes a client is being abused can notify authorities without having to worry about a lawsuit charging them with a breach of privacy.
Even though the Senior Safe Act has been on the books since 2018, officials are still actively encouraging firms’ leaders to educate themselves about its provisions and set up the training programs for eligible personnel that the law requires to qualify for the immunity protections.
Challenges of aging. On a recent online presentation, Olivia Valdes, a researcher with the Finra Investor Education Foundation, described how many older people face cognitive challenges that make them particularly vulnerable to financial exploitation.
“People are susceptible to scams at any life stage,” Valdes said, but old age “poses some unique risks to scam susceptibility and financial decision-making.”
Compounding the challenge is the mismatch between many older people’s perception of their own cognition and their actual capabilities, Valdes said, noting that 30% to 40% of older adults make “suboptimal” financial decisions.
The extent of the losses seniors suffer from financial exploitation is hard to pin down, because so many instances go unnoticed or unreported. The AARP recently published a report touting a new methodology it says accounts for some of the vagaries that make quantifying the scope of elder abuse a challenge, offering a figure of $28.3 billion in annual losses. AARP says the rate of elder abuse doubled during the pandemic.
Firms that want to be able to intervene on behalf of clients they suspect are being exploited under the liability protections of the Senior Safe Act need to have a training program in place to educate advisors about the protocols for reporting the issue.
“Immediately, you need to escalate within your firm any concern of financial exploitation,” says Lori Schock, director of the Securities and Exchange Commission’s Office of Investor Education and Advocacy.
“Some firms, maybe an internal investigation is needed,” Schock says. “Discuss your concerns with a customer if that’s in line with your firm’s policy. They need to be aware of the adverse consequences of a disbursement or a transaction or a wire transfer. A lot of times, once the funds leave a firm it may be difficult if not impossible to ever get those funds back.”
Telltale signs. Richard Szuch, enforcement chief at the New Jersey Bureau of Securities, cites an array of behavior patterns that could indicate an older client is being exploited. Those include a client making a steady series of unexplained withdrawals, expressing confusion or nervousness about their finances, or responding defensively to questions about their withdrawals.
Szuch also warns about clients bringing a new person to meetings or any difficulty the advisor has in reaching the client directly without going through a third party.
“Any intrusion by third parties that may be suspicious, any out-of-the-ordinary transactions that seem suspicious, and any behavior that you detect based on your historic relationship with the person, that’s the kind of thing to look out for,” Szuch said.
Szuch, who chairs the senior issues committee at the North American Securities Administrators Association, argues that the Senior Safe Act strikes a sensible balance of granting firms liability protection for reporting suspected abuse while also setting meaningful privacy safeguards, such as confining reporting to qualified authorities rather than, say, a client’s relatives.
“I don’t think the burden’s too high, and I think it’s fair, because after all, we have to protect people’s privacy. We are talking about financial matters,” Szuch said. “Basically people have to act in good faith and with reasonable care when reporting possible exploitation.”
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