A report from the Florida Bar Journal cites studies indicating elder financial abuse is a growing trend
The number of elderly Americans is growing like never before. Census projections indicate that Americans 65+ will make up more than one-fifth of the U.S. population within 30 years, but despite the increasing numbers of older Americans, as a group, their quality of life has not necessarily kept pace. Improvements in healthcare are keeping people alive for longer, but they can’t always prevent cognitive disorders like dementia, which currently affects 5 million sufferers in the U.S. American family values have also changed – and with the fall of the multigenerational household, many children of older Americans no longer feel as obligated to directly care for them.
That leaves millions of Americans at home and often alone. And for many financial fraudsters, 80+ individuals are prime targets. Elderly individuals, some of whom suffer from dementia, can sometimes be easily convinced to sign checks, turn over sensitive account information, and reveal personal details about savings, investments, and credit cards. With older Americans at risk, how can we protect them?
The extent and nature of elder financial abuse in the United States
According to a study conducted by the insurance company MetLife, elderly Americans lose nearly $3 billion a year to fraud and financial abuse. Women, individuals between 80 and 89 years old, and elderly people who live alone are all at higher risk for financial abuse. More than half of elder fraud cases recorded in the study involved a stranger, and included telemarketing scams, home repair scams, robberies, and burglaries. More than one-third of fraud cases involved friends, neighbors, family, or at-home caregivers, while the remaining 12% of financial abuse cases involved professionals such as bankers, insurance advisors, attorneys, and nursing home administrators.
Scams perpetrated by financial professionals can often be devastating – and it’s important to know the signs
Despite the harmful nature of scams perpetrated by strangers, neighbors, family members, and medical professionals, scams perpetrated by financial professionals can be the uniquely devastating to vulnerable seniors. Unlike other financial scams, which may only lead to a few hundred or a few thousand dollars stolen, financial professionals often have control over hundreds of thousands or even millions of dollars in senior retirement portfolios.
While the exact type and nature of elder financial services fraud is slightly different in every situation, there are many criminal scams that are repeated over and over again, each time casting a new net for vulnerable seniors in a variety of settings. In order to protect yourself or a loved one who may be vulnerable to fraud, it’s important to understand the most common types of schemes that unethical individuals employ when targeting older individuals.
Common types of financial services fraud perpetrated by financial professionals include:
- Power of attorney fraud
- Unauthorized trading
Other common, but slightly-less-prevalent types of elder financial exploitation involve:
- Fraudulent or misleading annuity sales
- Penny stocks and junk bond fraud schemes
Churning scams involve brokers and advisors making unnecessary trades to profit off commission fees
Most investment brokers generate a part of their profits through commissions, usually a percentage-based or flat fee that is levied on a customer each time the broker buys or sells an investment for them. In many cases, this means that the more trades a broker executes for a client, the more money they’ll make. This incentive can lead a broker to intentionally over-trade a client’s account in a way that is not suitable for the client’s investment objectives.
This unethical practice, often referred to as churning, is a risk for brokerage clients of all ages. However, it is an especially big problem for older investors, who may not regularly check their account statements to verify and inspect the condition of their investment holdings. In some cases, older individuals may want to open a fee-based account, which usually charges a client 1-2% of the value of the account and includes commissions as part of that fee. This way, a broker is not incentivized (or is much less incentivized) to make trading decisions that will negatively affect their client.
Unethical investment professionals may attempt to convince elderly investors to sign away their power of attorney
Granting an individual power of attorney (POA) allows them to make important financial decisions on another person’s behalf. While there are situations where a highly-trusted advisor could be granted a limited power of attorney for a specific period of time in specific situations, some brokers or advisors will attempt to pressure elderly individuals into signing their power of attorney away. This gives them control over a client’s account and can lead to serious financial abuse.
Before you or an older family member sign any POA forms, it’s a good idea to consult a trusted lawyer or other reputable legal and financial professionals to get advice about what you’re considering signing away.
Unauthorized trading can often result in serious investment losses for elderly individuals
Unauthorized trading occurs when a broker or financial advisor makes trades without the permission or against the wishes of a client. Unauthorized trading, much like churning, is a concern that affects all investors, regardless of age. However, like churning, unauthorized trading may affect elderly individuals more than the average investor, considering that many older investors do not regularly monitor their brokerage and investment accounts.
The more up-close signs of elder financial abuse often include:
- Funds disappearing from bank or investment accounts without explanation, valuable items disappearing from a person’s home, or bills not getting paid on time.
- Elderly individuals acting more secretive and getting a variety of unexplained credit or debit card charges.
- A family member or professional advisor who is responsible for or heavily involved in the elderly person’s finances won’t reveal essential information about their assets and accounts.
Better legal protection is needed for elderly individuals facing issues with cognitive decline
Florida law aims to protect the elderly from abuse and exploitation, but the law does not always safeguard the finances of elderly individuals with diminished decision-making capacity. Even in some cases in which the financial abuse seems clear, some Florida courts have ruled to maintain the original decision of the elderly individual. Fortunately, there are a range of mechanisms, including both litigation and securities arbitration, which takes into account specific financial industry regulations, that can serve to recover funds or otherwise achieve justice.
The difference between diminished capacity and capacity can be unclear
Unless stated otherwise, every individual has the capacity to enter into transactions of any kind. In the cases where a person is legally declared by a court to have less than full capacity, the court must determine which rights they are able to exercise and which ones they are not. If there are no good alternatives, an elderly individual will then be appointed a guardian who is often a family member. Nevertheless, the law is designed to interfere as little as possible with an individual’s right to make decisions for themselves.
If you suspect an elderly friend or loved one is a victim of financial abuse involving a broker or advisor, contact an experienced attorney
As the population of elderly individuals grows, unscrupulous financial advisors and brokers see millions of potential new victims. To prevent elder financial abuse from getting out of hand, investigate suspicious behavior and activity as soon as possible, and if you think you see evidence of elder financial fraud, contact an experienced elder financial fraud attorney.
The attorneys at Silver Law Group are leaders in the field of securities arbitration and elder financial fraud. 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.