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Here’s What Advisors Can Do if They Suspect Elder Financial Abuse

November 22, 2019

Key Points:

  • About half of seniors over age 65 handle their finances on their own, which could make them vulnerable to scams, according to data from AIG Life & Retirement.
  • More than 3 in 10 have no idea how to report elder financial abuse, AIG found.
  • Seniors over age 70 lost an average of $41,800 due to elder financial abuse, according to the U.S. Consumer Financial Protection Bureau.

Ed Gjertsen II, a financial advisor in Northfield, Illinois, knew something was fishy when an elderly and infirm client started cashing checks at a local bar.

It was out of character for the investor, a single man in his 70s.

“These were small checks: $500 here, $1,000 there,” said Gjertsen, a certified financial planner and vice president of Mack Investment Securities.

“He was in declining health, which is why we knew he wasn’t up and out of the house cashing checks — he just couldn’t do it,” he said.

After making calls to the bar, the financial advisor made a discovery: A close friend of the client was secretly writing and cashing the checks.

“If you’re a smart enough scammer, you’re not trying to cash $30,000 at once; you’re slowly moving money out,” said Gjertsen.

As boomers continue to age, financial advisors are confronting a new threat to their hard-earned savings: elder financial abuse.

Close to half of seniors aged 65 or over oversee their own finances, which makes them vulnerable to thieves, according to a new survey from AIG Life & Retirement.

Eight out of 10 participants said they would feel comfortable telling friends, family or a financial advisor if they had been subject to financial elder abuse.

What’s more, about 33% don’t know how to report an elder financial abuse incident.

The company performed an online poll of 2,200 adults in June.

“People are living longer lives than before,” said Michele Kryger, head of elder and vulnerable client care at AIG. “We are focused on helping people save for retirement, and we don’t want to see that savings go out the door to a fraudster.”

Threats Close to Home

Between 2013 and 2017, seniors (over age 70) lost an average of $41,800 to elder financial exploitation, according to an analysis by the U.S. Consumer Financial Protection Bureau.

Losses are even higher when the scammer is a friend or relative.

Seniors scammed by strangers lost an average of $17,000, while those who were ripped off by someone they know lost an average of $50,200, the bureau found.

In one case, an adult child reached out to one of AIG’s call centers in Amarillo, Texas, to make a large transaction request, Kryger said.

The client’s child was able to get around the security questions.

Thinking the call had ended, the child made a chilling admission to someone nearby — and the AIG rep on the line overheard it.

“We heard them say offline, ‘See how easy it is to impersonate my mother?’” Kryger said. The company followed its fraud protocol and contacted the authorities.

Establish Procedures

Financial advisors have tools at their disposal to protect older investors.

For instance, the Financial Industry Regulatory Authority allows broker-dealers to put a hold of up to 15 days on the disbursement of funds from accounts belonging to seniors if they believe that individual is being financially exploited.

Firms are also required to ask their retail clients to provide the name and contact information for a “trusted contact person” who can be contacted in the event of suspected financial exploitation.

The Senior Safe Act, a federal law, protects advisors and their firms from liability when reporting possible exploitation to the authorities.

To help advisors detect elder financial abuse, the Securities Industry and Financial Markets Association released a guide detailing signs of undue influence, power of attorney abuse and other fraud.

“There’s an aspect to this where it’s not just feel-good social services, but also a business purpose to look directly at the issue of aging clients and how to address this,” said Judith Kozlowski, an elder justice consultant in Washington, D.C.

In practice, advisors should work with clients to identify those trusted contacts early in the engagement.

“The most important thing an advisor can do is to have processes in place and be prepared for cognitive issues well in advance,” said CFP Carolyn McClanahan, a physician and director of financial planning at Life Planning Partners in Jacksonville, Florida.

“Once those cognitive issues happen, if you haven’t already prepared and set the tone for the discussion, it’s going to be a nightmare,” she said.

Identifying Who You Trust

While regulators provided a framework to head off fraud, it’s up to advisors to make those practices part of what they do.

Here’s where to begin:

Establish a durable power of attorney. A durable power of attorney allows your client to assign someone to oversee their finances in the event they’re incapacitated.

Create a revocable trust. Depending on the assets a client holds, it may make sense for them to have a revocable trust while they have the mental capacity to do so. A co-trustee can help pay bills and protect the assets.

“There may be a co-trustee who’s appointed to insulate the funds placed in trust from any type of third-party fraud,” said Bernard Krooks, an elder law attorney and founding partner of Littman Krooks in New York.

Delegate responsibilities. Have family discussions well in advance to ensure the client is keeping his relatives apprised of what’s going on and who will be responsible in case of incapacity.

“Make sure the trusted contact people know that they are the contacts, and let the family know what’s being done around bill paying,” McClanahan said.

“The more you delegate to others, the less likely that any one person can take advantage,” she said.

This might also mean having a trusted relative receive duplicate statements online or via email if the client is unable to handle his or her own affairs.

Be vigilant and supportive. Keep an eye out for suspicious spending patterns, as they can be signs of fraud or diminished capacity.

For instance, one of McClanahan’s clients, a 94-year-old man, was accidentally overpaying his credit card bill. “It was a sign that he was having trouble, and that’s when the son stepped up his monitoring,” she said.

Further, document your meetings and give your clients a written and verbal recap of what you discussed.

“This is a 360-degree issue that affects the firm and the client,” Gjertsen said.

Originally Published on CNBC’s FA Playbook
Written by Darla Mercado

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