Protecting Senior Clients from Elder Financial Abuse

Heather Murphy, CSA®, CAMS, AIF®
Heather Murphy, CSA®, CAMS, AIF®

06.15.22 in Compliance & Regulation

Estimated Reading Time: 4 Minutes (731 words)

Insights RPA 10

According to the National Council on Aging, elder financial abuse and fraud affect more than five million older Americans each year. This results in estimated losses to the victims of between $2 billion and $36.5 billion annually. While financial abuse is more likely to be reported than other forms of elder abuse, victims are often reluctant to report the crime. In addition to being financially devastating, financial abuse can cause long-term harm to the victim’s physical and emotional health and family relationships.

That’s why it’s critical for financial advisors to keep an eye out for unusual requests or actions that seem out of character. You know your senior clients well. You’re accustomed to their risk tolerance, general financial habits, and spending patterns. So, if a client asks for several fund distributions in unusual or increasing amounts over a short period of time, you'll want to dig deeper to determine whether the request is legitimate or a sign of something more sinister.

The following four questions can help you protect senior clients by identifying signs of potential financial abuse. It's better to ask open-ended questions to start. If a client has trouble answering, you can ask more targeted questions. As feelings of shame or defensiveness can often accompany financial abuse, be sure to address each situation with care and sensitivity.

1) What Do You Plan to Do with the Money?

This question can feel confrontational, so consider softening your approach. Explain that you need to a clear picture of your client's expenses to manage their assets effectively. Anti-money laundering regulations require you to understand the nature and purpose of transactions in client accounts. Although a client isn’t required to provide a reason for the transaction, refusing to explain why they’re withdrawing funds is a red flag.

If your client says they plan to use the withdrawal to pay bills, continue probing with additional questions. What’s different this month? Why do they need the extra money?

To learn even more, you could also ask whether the client’s monthly income and expenses have changed and why. This may uncover additional red flags.

2) How Will You Pay Your Expenses Once the Funds Are in Your Bank Account?

When you’re directed to send funds to a client’s bank account, ask where the money is going next. Answers that involve mailing cash, bitcoin, gift cards, prepaid cards, or payments to an unknown third party are red flags.

Pay attention to the client’s circumstances. Sudden requests for funds may be more suspicious if your client is recently widowed, divorced, or otherwise isolated or if they mention a new friend in their life. The same goes for clients who may be more susceptible to risky ventures, such as get-rich-quick investments, or who have been victims of a scam before.

3) What Are Your Plans for Replacing the Funds?

If your client says the funds will be returned soon, ask how they plan to do that. Where will they get the money? Perpetrators of romance and lottery scams frequently assure victims that they’ll return their money quickly. You could also discuss how a transaction will affect the client’s financial situation.

4) Why Is This Request So Urgent?

Fraudsters often tell victims they must act right away to receive a benefit. Some victims are told they’ll be arrested if they do not pay immediately. So, if your client is particularly anxious to receive funds, ask why.

Frame the question in a way that shows you're simply trying to help. For instance, say you would like to find ways to avoid having to respond with such urgency in the future.

Safeguarding Your Client's Interests

To safeguard your client's interests, be sure to report your concerns about unusually large or frequent withdrawals to your firm partner’s compliance or legal department. They can help you gain a clearer understanding of the situation and determine appropriate next steps.

Each situation, just like each client, is unique. Protecting senior clients may involve reaching out to the client’s trusted contact or the person holding a power of attorney. State laws and other factors may require that you refer the case to a local social services agency, regulator, or law enforcement agency. Firms may also choose to place a temporary hold on a requested distribution or trade pursuant to FINRA Rule 2165 or similar state law should they believe the client is the victim of financial exploitation.

This material is for educational purposes only and is not intended to provide specific advice.

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