It may start slowly. You notice that an elderly client is beginning to make decisions about investments that don’t follow his or her previously-stated long-term strategy. Then the client refuses to follow advice that is consistent with these long-held objectives.
These are 2 of 10 red flags of diminished capacity identified by AgingInvestor.com,* a website offering expertise on aging to financial professionals.
As our population ages and as longevity increases, it only makes sense that evidence of impaired financial decisions would be on the rise as well as attempts to inflict financial fraud on the elderly.
Senior fraud can take many forms, according to the National Committee for the Prevention of Elder Abuse. Its website** points out perpetrators can include relatives who may feel justified in taking what they believe is “almost” theirs. A senior’s loneliness and isolation can raise the risk of abuse. Those same factors can also increase susceptibility to telemarketing scams, according to an AgingInvestor whitepaper.*
The advisor may be among the first to notice something is wrong, according to an InvestmentNews survey of 591 advisors***. Murkiness of evidence and concern about litigation might tempt a financial advisor to look in the other direction. The advisor may even decide that ending a client relationship is the easiest solution.
Advisors may be interested to know that regulatory agencies are responding. A rule approved by the Securities and Exchange Commission (SEC) and effective February 2018 will require advisors to make a reasonable attempt to identify, with the help of clients, trusted third-party contacts. These contacts can be notified when an advisor recognizes suspicious behavior by an elderly client. The rule, authored by the Financial Industry Regulatory Authority (FINRA), will allow advisors to temporarily stop disbursements from accounts of clients when they suspect those accounts might be vulnerable to fraud or diminished mental capacity.
FINRA notes that recognition of trusted third parties may create side benefits. For instance, if an elderly client becomes ill and does not respond to inquiries, an advisor could contact the trusted third party for information.
It’s a sign of the times that the SEC has added protection of seniors to its 2017 examination priorities list. The agency said it “will evaluate how firms manage their interactions with senior investors, including their ability to identify financial exploitation of seniors.”