Number Of Suspected Senior Scams Escalate

Fraudsters are increasingly trying to take financial advantage of the elderly, according to the U.S. Treasury Department, even as more protective measures are taken to protect seniors.

The Treasury Department said it received 24,454 reports from banks of suspected financial abuse of their elderly clients last year, double the number received five years ago and a 12% increase for the year. Banks are required to report suspected financial abuse.

The dramatic increase is probably attributable to both a rise in the number of scams and an increase in awareness and reporting, said Brie Williams, head of practice management at State Street Global Advisors, based in Boston.

“There is a louder voice in the media now about protecting the most vulnerable citizens,” Williams said. Federal and state legislation and regulations are being passed to help protect seniors from fraud and protect advisors and financial institutions from lawsuits if they report suspected financial abuse, she added.

The Government Accountability Office said seniors lose an estimated $2.9 billion annually from financial fraud. But the actual number is probably higher because fraud is an underreported crime—some victims don’t report it because they are embarrassed to have been a victim.

“As the population transfers from the workforce to retirement, too often elder investors are taken advantage of,” Williams said. “They are in a more vulnerable situation and may experience diminished capacities,” which increase the possibility of fraud. “But this is an opportunity for advisors to be more proactive.”

The Senior Safe Act passed last summer prevents advisors and financial institutions from being held liable for reporting suspected financial abuse to law enforcement or regulatory agencies. The new law also encourages firms and institutions to provide training for employees in how to spot financial abuse and what to do when they have suspicions. Many banks now have training courses and videos for employees to raise awareness.

In February, the Financial Industry Regulatory Authority adopted two new regulations that address the senior fraud issue.

Rule 2165 allows banks to place a temporary hold on disbursements from accounts if an employee suspects the account holder is being duped. Rule 4512 requires advisory firms and banks to make a reasonable effort to obtain the name of and contact information for a trusted contact of clients.

Williams said there are telltale signs of clients experiencing diminished mental capacity that advisors should be aware of, such as when clients forget information or they have problems keeping up with financial details.

“Advisors now are reaching out to the trusted contacts of their clients when they see the warning signs,” she said. “It also is important for advisors to be aware of how to educate clients’ families on what to look for. The family members will see first if the person has trouble with basic math or has mail piled up.

“We, as advisors, have a fiduciary duty to do the right thing in these situations,” Williams said. “This is a global challenge, and it is an emotional, as well as financial, problem for the client. Education of the client is the first step because fraud can have a devastating impact on the client’s financial plan.”

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Number Of Suspected Senior Scams Escalate

Three states make elder-financial-abuse reporting mandatory starting Friday

Laws in Alabama, Indiana and Vermont that go into effect Friday, July 1, will require financial advisers to alert state authorities of suspected financial abuse of the elderly and other vulnerable adults.

The measures were approved earlier this year by each state's legislatures and signed into law by their governors. In addition to mandatory reporting in situations involving people older than 65 or who are disabled, they also allow advisers to stop the disbursement of funds from client accounts and give advisers immunity from civil liability.

In Louisiana, elder-protection legislation signed into law on June 16 will go into effect on Jan. 1, 2017.

Each of the measures tracks to varying degrees a model rule approved earlier this year by the North American Securities Administrators Association Inc. The organization, comprised of state regulators, has made protecting seniors from financial exploitation a priority.

“This law will help our investment advisers and brokers to partner with us in Vermont to tackle this problem that is pervasive,” said Michael Pieciak, Vermont deputy securities commissioner.

An Indiana adviser welcomes his state's new law because it gives him “more tools” to help clients who may be fraud victims.

“That's exactly the kind of thing we applaud,” said Michael Kalscheur, a senior financial consultant at Castle Wealth Advisors. “I now have a legal [leg] to stand on. That's a great additional benefit we can use to help protect people.”

Before the NASAA model rule came out, three other states had enacted elder financial abuse laws: Delaware, Missouri and Washington.

On the federal level, Sen. Susan Collins, R-Maine, has written legislation that would give advisers immunity for reporting senior exploitation.

The Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission also have targeted elder financial abuse in their examinations and enforcement.

The focus on this issue is a natural result of the burgeoning number of retirees and their wealth, said Joseph Borg, director of the Alabama Securities Commission. He made an analogy to Willie Sutton, a notorious thief who once said he robbed banks “because that's where the money is.”

“Guess where the money is these days,” Mr. Borg said. “It's with the folks over 65. It's the senior population that has the assets.”

Finra and the states have diverged on the way to address the problem. A proposed Finra rule does not require reporting but rather allows advisers to designate a third party who they can inform of suspected problems.

But Mr. Borg said the Alabama law for advisers had to be consistent with other state statutes that require the reporting of physical and emotional abuse of seniors.

“It made no sense in my state to make it voluntary,” he said. “If it was mandatory for them, it had to be mandatory for us.”

The provision that allows advisers to stop cash flows out of an account also was crucial, according to Mr. Pieciak.

“The second that money is gone, it's very hard to get it back,” he said.

Many state legislatures had so-called short sessions this spring. More of them may take up senior financial abuse laws in 2017.

“We hope to see the broad adoption of legislation consistent with the NASAA model when state legislative sessions convene next year,” NASAA spokesman Bob Webster wrote in an email. 

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Three states make elder-financial-abuse reporting mandatory starting Friday