Advisor Alert: Have You Done Enough About Senior Fraud?

Financial institutions, advisors, and regulators can all do more to protect America’s seniors against financial fraud. That’s the conclusion of a new survey of state securities regulators by the North American Securities Administrators Association (NASAA).

According to its survey of 36 state regulators, most (97 percent) believe the majority of cases of senior financial fraud go undetected rather than get discovered before they cause serious problems.

The same percentage—97%—say there’s a greater awareness of senior investment fraud today than there was a year ago. However, that hasn’t translated into a widespread decrease in senior fraud complaints. Sixty-nine percent said they have experienced about the same rate of senior fraud, while 29 percent said their cases have increased and 3 percent said they’ve decreased.

The results come from NASAA’s recent Pulse Survey conducted on member regulators from July 24 to August 4, 2017.

The survey also uncovered broad support for the notion that broker-dealers and investment advisors should do more to help prevent senior fraud, with 75 percent agreeing with that statement. The survey respondents also said state legislators could play a larger role since only 48 percent of jurisdictions had adopted NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. Yet those who had enacted the rule said they’d had success stopping the disbursement of senior funds to scammers using the law’s provisions.

What more can securities brokers and investment advisors do? A prior NASAA study provides an action blueprint for securities brokers and their broker-dealer firms to consider:
• Institute a formal policy defining senior clients and, if so, what age designates senior status.
• Create a department, committee, task force, or other group or person responsible for identifying and addressing senior-related issues.
• Devise a policy to collect information about trusted or emergency contacts.
• Determine what additional documents required when opening or updating accounts for senior customers.
• Establish a policy that sets frequency standards for reviewing, updating, and documenting senior investment objectives.

• Define a process for reporting concerns regarding potential diminished capacity and/or elder financial abuse.

The National Ethics Association also suggests that advisors consider it their fiduciary duty to take extra care when working with senior clients. They should do their best to act prudently regarding their resources, to do rigorous due diligence before any proposed actions, and to act in good faith at all times. Related to this is a special duty to help seniors stay safe in a dangerous marketplace.

The protective role suggests a more aggressive educational and counseling stance with senior clients than might be warranted with younger clients. The National Adult Protective Services Association suggests advisors watch for the following scams that strangers, financial/business professionals, and family members often perpetrate on seniors.

Common Scams by Strangers
• Lottery & sweepstakes scams—“You’ve already won! Just send $2,500 to cover your taxes”

• Home repair/traveling con men—“We’re in your area and can coat your driveway/ roof really cheaply”

• Grandparent scam—“Your grandchild is in jail and needs you to send money immediately”

• Charity scams—Falsely soliciting funds for good causes; very common after disasters

• Utility company scams—“I need you to come outside with me for a minute” (while accomplice steals valuables)

• House scams—Overpriced or unneeded roof or driveway repairs, yard work, or other maintenance items.

• Phone scams—fraudulent telemarketing appeals, phony IRS accusations, or other threats

• Money-transfer schemes—Pitches to have senior send money via PayPal or other means to fraudster accounts.

Common Scams by “Professionals”
• Predatory Lending—seniors pressured into taking out inappropriate reverse mortgages or other loans

• Annuity sales—seniors pressured into using the equity realized from a reverse mortgage (or other liquid assets) to buy an expensive annuity which may not mature until they are well into their 90s or older.

• Investment/securities schemes—pyramid schemes; unrealistic returns promised; dealer is not licensed

• Internet phishing—false emails about bank accounts

• Identity theft—credit cards opened fraudulently

• Medicare scams—which can be the costliest in terms of the dollar amounts

Common Ways Family Members and Trusted Others Exploit Vulnerable Adults
• Using a Power of Attorney—given by the victim to allow another person to handle his/her finances, as a license to steal the victim’s monies for the perpetrator’s own use

• Joint bank accounts—taking advantage in the same way

• ATM cards and checking accounts—using those vehicles illegally to access and withdraw a senior’s money.

• Violence—threatening to abandon, hit or otherwise harm victims unless they give the perpetrators what they want

• Medical Blocks—refusing to obtain needed medical care and personal services for the victim in order to keep the senior’s assets available for theft

• In-home care providers—Charging for services, keeping change from errands, asking the vulnerable adult to sign falsified time sheets, spending work time on the phone and not doing what they are paid for

Finally, according to EOforLess, an online provider of E&O insurance for financial professionals, failing to detect obvious signs of senior financial exploitation might raise legal issues for advisors should their clients’ money be stolen. As always, EOforLess urges life insurance agents and investment advisors to identify and mitigate the risks of working with older clients and their families.