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How to Spot Elder Financial Fraud (and How Ethical Financial Advisors Should Act to Stop It)


Advisors and other trusted professionals have an ethical duty to stop senior financial fraud

Elder financial fraud is an increasingly serious issue in the U.S. As more Americans become seniors – at the rate of about 10,000 a day – new victims across the country are feeling the consequences. This means that whether you’re a financial advisor, accountant, or lawyer with elderly clients, or you simply have older friends or family members, it’s essential to understand the warning signs of senior financial fraud. By doing so, you may be able to help protect the seniors you care about from serious monetary losses as well as the associated emotional damage when someone becomes a victim.

FINRA has made several recent changes in order to help advisors combat senior fraud

Experts believe that financial advisors may be “in the best position to identify suspicious activity, even before family and friends,” and the Financial Industry Regulatory Authority (FINRA) has new policies that have taken this concept into account. In particular, financial and investment firms must now make a “reasonable effort” to identify a trusted contact person or next-of-kin when opening a customer’s account.

This allows a financial advisor to contact a family member in the case of suspicious account activity or suspected elder fraud. However, having a close family member as a contact person can sometimes be a double-edged sword; statistics show that most senior citizens are “abused by someone they know and trust,” so a financial advisor’s call could simply be “tipping off” the perpetrator of the crime.

AARP believes that financial advisors need more training to effectively fight elder fraud

Despite a variety of policy changes made by FINRA, most brokers and advisors simply don’t have the right training to effectively combat elder financial abuse – much of which involves understanding how to deal with clients who may have diminished capacity. According to the AARP Public Policy Institute, only 33% of financial advisors, and only 25% of compliance officers underwent required training on “issues related to diminished capacity.” Therefore, while recent policy changes may have positive effects, much more broker and financial advisor education will likely be needed in order to seriously combat elder financial fraud.

There are a few major signs that financial advisors (and other individuals) can watch for that may indicate fraud. These include:

Unexpected and/or repeated cash withdrawals or wire transfers could be a sign of elder fraud

Whether you’re a financial advisor or simply a concerned friend or family member, if you see that a senior is making unexpected and/or repeated cash withdrawals or wire transfers from savings or investment accounts, it could be cause for alarm. For example, if a financial advisor sees that a senior client has been making these withdrawals from a retirement account or trust (especially an account intended for emergency funds or one intended for their children or spouse’s inheritance), they should check with their client for further clarification. Friends and family members, in comparison, may be more likely to pick up on irregularities involving checking or savings accounts, and also should immediately ask seniors about any strange or unexpected patterns they see.

New friends, associates, or relatives appearing with a senior (or seemingly making financial decisions for them) could be another sign of elder fraud

Unfortunately, it’s all too common for scammers to ‘befriend’ an older person, simply to find a way to steal their money. In other cases, a long-lost or estranged family member returns to ‘befriend’ their senior relative they haven’t spoken to in years – also with the intent of stealing or defrauding them of funds.

In yet other situations (often when a senior is suffering from dementia or Alzheimer’s), a stranger may pretend to be a long-lost relative such as a cousin, nephew, or even a child in order to gain the trust of an elderly victim. Advisors should watch closely for suspicious behaviors, such as a new relative or friend suddenly making calls dealing with the senior’s finances, or hearing another individual’s voice on the phone when speaking with an elderly client.

If a senior is uncharacteristically excited about a potential investment but won’t reveal details, it could be an indication of fraud

Many fraudsters will attempt to get seniors excited by telling them that they’ve won some kind of lottery, prize, or award. After getting the victim excited, they may attempt to sell them fraudulent real estate, fake insurance, or phony investments. Therefore, if advisors or others see that a senior is uncharacteristically excited about “winning” or “getting” money or a prize, but can’t (or won’t) fully explain the situation, it could be a sign of fraud.

While unethical financial advisors contribute to senior fraud, ethical advisors may be able to prevent it

Financial advisors are put in a position of great power and responsibility, especially when they manage the financial portfolios of senior citizens. For unethical advisors, it’s all too easy to take advantage of many older customers, especially if the client doesn’t fully understand their financial situation and doesn’t have trusted friends or relatives they can turn to for help. At the same time, ethical financial advisors are in a unique position to help their clients prevent major financial losses by detecting fraud at its earliest stages. In addition, firms are responsible for supervising the activity of their brokers and financial advisors, and can be liable for any losses related to fraud.

If advisors are to fully embrace their roles as financial protectors of the elderly, they’ll need more education, smarter regulations, and better government policies to back them up. For now, however, ethical brokers and advisors can still use the tools and training they already have to make a positive impact on their clients’ financial futures – no matter what their age.

The attorneys at Silver Law Group are leaders in the field of securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor. Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. Contact us for a complimentary consultation about your situation.

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