Surprising Places We Watch for Financial Exploitation of Seniors

SPOILER ALERT: It could be you that I have to watch, and frankly not only do I like you but you don’t mean any harm either.

In the financial services industry Financial Exploitation of Seniors Abuse has become more of a concern every year.  At conferences we hear about it, our peers talk about it, and unfortunately, we have had to start dealing with it at BCR.  I have been surprised many times by the form it has taken and decided it would be valuable for our readers to hear several perspectives to understand how it is affecting vulnerable adults, the financial services industry and adult children that are taking care of their parent’s finances.  To do that I invited a few experts on the topic to answer some questions.

Kristie Clayton is BCR’s Chief Compliance Officer tasked with regularly reviewing, auditing, and determining the appropriate actions of the firm for compliance purposes.  She has attended several workshops, conferences and researched elder care abuse over the years.

Josh D Jones and Matthew Penfield are attorneys and principals at Bressler, Amery, Ross (Bressler). Bressler specializes in working with companies regulated by the Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).  Josh and Matthew are members of the firm’s Senior and Vulnerable Investor Group, whose members provide end-to-end advisory solutions and litigation support for investment advisers, broker-dealers and other financial institutions confronting senior/vulnerable investor issues.

Amanda Senn is the Chief Deputy Director with the Alabama Securities Commission (ASC).  The ASC regulates the securities industry in Alabama. The Commission is committed to protect investors against securities fraud and provides aggressive enforcement actions against any firm or individual who has violated the Alabama Securities Act or other state and federal statutes to the detriment of Alabama investors.

MR:  When I used to think about Elder Care Victims, I imagined a villain that would take advantage of a reduced cognition to knowingly steal assets that the victim wouldn’t recognize were missing.  While that does occur, I have been surprised by what I have learned and how much more difficult it is to recognize. Can you tell us the type of potential Elder Care Abuse?

KC:  It’s unfortunate to see either type of abuse, Marshall.  We all hear the horrible stories on the news of vulnerable adults who give away their life savings to someone over the phone or trusted care takers. They can seem obvious; a Nigerian prince doesn’t need help getting his money out of the country, you don’t have to pay fees to obtain your lottery winnings or inheritances that are trapped in accounts outside the US.

Other situations can be much more subtle.  We’ve helped parents whose children were taking small amounts of money multiple times over long periods to pay off debts, take vacations and for small home repairs, etc.  Over time those withdrawals added up to substantial amounts of money and threaten the parent outliving their assets.

Parents can feel an obligation to take care of their children, regardless of their age or the harm it can do to their wellbeing.  There might be times they want to do something fun for their child(ren) like pay for a vacation or new car and other times they are helping with financial obligations that they child(ren) cannot afford like home repairs or paying off credit card debt.  A parent might not realize they are enabling the child(ren) if the “one-time” offer becomes habitual behavior.

At the same time, adult children can sometimes feel like spending their living parent’s money is acceptable because they (and the family) will eventually inherit the assets in the long run anyway.

MR:  The families that I deal with I haven’t found the children to have any ill will towards their parent and I can honestly say that I have understood the situations that I have been involved. It doesn’t cross their minds that their parents will be harmed and run out of money because of their use of the assets. In fact, I can tell you most situations it is not an issue that a parent wants to help their children. Please tell us how an advisor determines the difference and what we can and can’t do.

KC: It is a rare situation where a child intentionally tries to harm their parent.  For the most part, I believe the child(ren) are unaware of the consequences of their recurring requests.

Fortunately, we have financial planning software that helps our advisors simulate numerous scenarios.  We start by entering basic lifestyle information and add in potential needs and/or wants that may arise.  Most of the time we use this software to help clients document their goals, determine how much to save and what avenues are most effective for them.  One of my favorite features is that we can show clients their probability of success in reaching their goals. Many clients want to leave an inheritance to their children and/or grandchildren that will provide for their families, pay for college, etc. 

In circumstances where we are concerned, we can use this software to show clients that not only could they not reach their goal of leaving behind a legacy, but they could outlive their assets if they continue withdrawing assets at a rate higher than calculated.  It is an eye-opening experience where data can help reduce the emotional stress of wanting to give to your child vs maintaining enough to live on.   Advisors are not being “mean” and telling you not to give your children money.  We’re trying to help you by making sure you have enough assets to live on for the entire duration of your life.

MR:  If advisors suspect that an Alabama resident is or may become the subject of financial exploitation, what are they required to do?

JDJ and MP: In April 2016, Alabama became one of the first states to adopt a version of the NASAA model act and require certain financial institutions to report suspected financial exploitation of persons deemed to be “vulnerable clients” to governmental authorities. The Protection of Vulnerable Adults from Financial Exploitation Act requires that broker-dealers, investment advisers, agents and other “qualified individuals” report suspected exploitation when those financial professionals have a reasonable belief that it may have occurred, has been attempted or is being attempted.  The reporting requirements under the act are rather straightforward but we’d recommend that advisors contact the appropriate person in their compliance department and that firms consider consulting with their lawyers.

MR: To compound the difficulty of identifying Elder Care Abuse situations, every state has its own laws and regulations around the topic.  We have clients in many states and our readers are all over the globe.  Where would someone look to understand what their state expects?

JDJ and MP: That is a great point, Marshall.  The laws vary substantially by state and are changing pretty rapidly as states move to adopt laws similar to the Alabama Act.  Bressler’s Seniors and Vulnerable Investors Map is the industry’s go to resource.  It is regularly used by our clients, other financial institutions, regulators, and our competitors.  It is completely free and available for use by anyone willing to provide their email address.  We track legislation across the country as laws are implemented and revised, provide contact information for various regulators, and summarize the states’ various adult protective services laws as they apply to financial exploitation. 

MR:  BCR is fortunate to do significant business in Alabama where the ASC is proactive, and you make it widely known that you are available to consult with firms like ours when we have concerns.  Many of our readers are peers in other states.  What would you tell them about finding resources in their states when something just doesn’t smell right?

ASC: Nearly half of the states have adopted the North American Securities Administrators Association’s (NASAA) model act- To Protect Vulnerable Adults from Financial Exploitation- and several others have similar laws in place.  One component of state securities regulation is outreach and education.  The benefit of being “local cops on the beat” is that state regulators know what’s going on within their borders and are excellent resources for the public, including members of the public that are in the financial industry.  Through NASAA, state regulators work quickly and cooperatively to ensure that the public is aware of the latest frauds and part of that effort includes training, seminars, meetings, roundtables, etc. with statewide partners.  I encourage those in other jurisdictions to reach out to their local securities regulator and ask about upcoming events, trainings, etc., or better yet, schedule a meeting with staff to discuss what they are seeing on the financial exploitation front. 

Another excellent resource is the state departments of human resources, adult protective services, and/or department of health services (or similar bureau).  These agencies process reports of elder abuse of all types- physical, emotional, financial- and are willing to offer their expertise in an effort to combat these forms of abuse.

MR:  Of course, this effects society and not just advisors. What should our readers do if they suspect someone is the victim of Elder Care Abuse whether it looks like the scenarios we laid out or the more traditional theft?

ASC: Report, report, report! Financial Exploitation is an issue that affects all of us.  I have witnessed firsthand the devastation as a result of financial exploitation and, sadly, there are times when the victim has been forced to move in with friends or family, if once independent, or when he or she has had to turn to public assistance because his or her life savings was completely depleted. Fortunately, we have extraordinary industry partners in the fight against this type of abuse and financial professionals are the on the front line.  Many of the most egregious cases in Alabama came to us through a report from a financial professional.  Together we bring these cases to light.

In those states that don’t require reporting to a state securities regulator and/or department of human resources, report to local law enforcement.  All states either have laws governing the crime of theft and/or financial exploitation- which, in Alabama, is essentially the crime of Theft by Deception committed against someone aged 60 or above.

MR:  If an individual is placed in charge of someone else’s financial situation how can they protect themselves against Elder Care Abuse allegations?

ASC: Do the right thing!  When someone is placed in a position of trust as a fiduciary, i.e. as a conservator, guardian, trustee, power of attorney, etc., that person has a legal obligation to take only actions which are in the best interest of the person who is placed under guardianship, conservatorship, power of attorney, etc.  This means that a conservator, trustee, or guardian must put the needs of the vulnerable person first, and not serve their own interests.  Moreover, and notwithstanding a legal obligation, a good conscience should indicate when an action breaches the trust of another. 

At times, however, we understand that additional guidance may be necessary as it pertains to the technical authorizations associated with being a fiduciary. If an individual in charge of someone’s financial situation is concerned about whether an action is inconsistent with the responsibilities he or she is entrusted to carry out, I suggest a quick phone call to an attorney for guidance.

In the instance of mistake as to the legitimacy or validity of an instrument creating the fiduciary relationship, my best personal advice is to have an attorney prepare the instruments.  He or she will secure the attendance of witnesses and notaries and attempt to verify that there are no additional conflicting instruments (in the creation of a power of attorney, trust, or will).  Conservatorships and guardianships, due to their inherently challenging legal requirements and required legal proceedings, should give the person declared a guardian or conservator assurances that his or her authority will not be challenged.  Unless of course, they don’t follow the advice above!

MR: If you were advising our readers what is the most important things for them to remember about Elder Care Abuse?

KC: We all know every airline gives the same flight attendant’s speech – “You must put on your oxygen mask first and then help those around you.”  I encourage parents to speak with their advisor when making decisions about giving away their assets, regardless of whether it’s small vs large amounts or recurring vs one-time withdrawals.  To continue to help those around you, you need to make sure you don’t outlive your assets. Ask yourself, if your child(ren) is asking you for money to sustain their lifestyle, will they have money to give you if you should run out?

ASC: If you suspect it, follow up, and report it.  As a general rule, folks don’t want to interfere in another’s business, or appear nosey, but if there’s a suspicion of abuse, follow up with the victim.  Ask questions.  Oftentimes the victim may seem fine, but once in a while he or she may give you an indication that something’s just not right.  Follow up with a few questions and you may discover that things aren’t always as they first appeared.  In the financial industry, my best personal advice is still to “know your customer.”  Because you know your clients, when vulnerable adult “Ms. Jones” comes to you with an unusual request, you’ll be able to flag it as unusual and follow up with her about the request.  We at ASC have seen millions of dollars, processed as a routine request, sent on behalf of a “military paramour” located overseas or “the final payment” of a fine or fee necessary to collect a lottery winning.  Once the money has left the account, the likelihood of getting it back is slim to none.

JDJ and MP: Most financial exploitation is committed by someone close to the victim.  It is usually a family member.  Friends and caregivers are also frequently involved in exploiting seniors.  We encourage investors to be aware of what is going on in their accounts and to raise any concerns with their advisor and/or someone else at the firm.  For advisors, we would encourage them to look for red flags of potential exploitation, to be mindful of signs of diminishing cognitive capacity, to document their client interactions, and to immediately raise any concerns with their compliance department.


Marshall Rathmell

Marshall Rathmell

Marshall Rathmell CFP®, CPA/PFS is the CEO, Shareholder and Financial Planner with BCR Wealth Strategies.