Three Steps Investment Advisers Can Take to Detect and Prevent Elder Abuse
RIA firms and their affiliated investment advisory representatives, or investment advisers, work with clients of all backgrounds and ages,many of which are particularly susceptible to scams and threats. Elderly investors are vulnerable to financial exploitation due to many factors, including living in a socially isolated environment, diminished capacity and cognitive impairment.
As a regular contact with senior clients, investment advisers have the unique opportunity and, in many states, the legal obligation, to identify and address the red flags of financial exploitation and fraud, and to report such suspicions to the state department where the client resides.
Elder Financial Abuse and Neglect
One in 10 Americans 60 or older are estimated to have experienced elder abuse, with less than half of those cases reported to the authorities. According to the National Institute on Aging, elder physical abuse includes and often occurs in tandem with financial abuse. Financial abuse includes more than just stealing personal information.
It also includes financial exploitation, when an abuser uses the victim’s money without permission or through manipulation and fear. It can take the form of financial neglect when the person is unable to account for their own mortgage or bills while financial responsibilities are left unpaid.
What role should investment advisers play in detecting and reporting, as well as preventing elder abuse? The key is to know what to look for and to have clear, actionable policies in place. Below, we highlight three crucial steps investment advisers can take to identify and respond to suspected elder abuse.
1. Don’t Accuse
Advisers should refrain from making any accusations directly to the suspected abuser or even the client. Rather, they should observe, document and report the flagged behavior to the appropriate authorities and wait for further instructions. If the client has appointed a “trusted contact” (who is not the individual under suspicion), you may also wish to notify them.
Direct accusations may worsen or streamline the abuse or encourage the abuser to remove any contact between the firm and your client. When it comes to situations as serious as elder abuse, it’s best to report and defer to trained authorities and report the suspicions to the state department where the victim resides. You’ll also want to be sure to stay within federal regulations in your approach to reporting suspected abuse.
To learn more about the regulations and specific state requirements regarding reporting elder abuse, you can reference the Senior Safe Act fact sheet, created and distributed through collaboration with the North American Securities Administrators Association (NASAA), the SEC and FINRA.
The act offers liability protections to financial professionals who face barriers related to reporting suspected senior financial exploitation. We highly encourage chief compliance officers (CCOs) and other investment adviser firm members to carefully review The Senior Safe Act fact sheet in its entirety given the continued regulatory focus on senior investor protection and exploitation.
2. Know the Warning Signs
RIAs should take on the vital task of educating their staff on the warning signs of elder abuse and financial exploitation. As investment advisers work closely with their clients to understand their financial goals and habits, they are in a unique position to be able to identify both cognitive decline in a client and the signs of potential fraud.
Recognizing red flags is key to early abuse detection and prevention. Some red flags can be spotted throughfinancial activity, such as:
- Erratic or uncharacteristic transactions.
- Frequent, large withdrawals.
- Unpaid bills or financial mail redirected to a different address.
- Suddenly closed accounts, especially those which incur penalties.
- Suspicious signatures on accounts or new names added to accounts.
While these actions certainly don’t confirm elder abuse, they should encourage advisers to look closer at their client’sfinancial situation for further warning signs.
Other red flags come directly from clients or their caregivers. These can include:
- An inability to speak directly with the elderly client.
- An elderly client who is unusually submissive toward their caregiver.
- A caregiver, family member or friend attempts to insert themselves into the financial planning process, often overriding or interrupting the elderly client.
3. Put Strong Policies in Place
The last step toward elder abuse prevention within your firm is to set up strong policies and procedures which directly address elder abuse.
These policies should define elder abuse, while also providing guidance on red flags. You’ll also need to include a list of actionable steps your staff can follow if they need to report suspected elder abuse. Such policies may include placing a hold on any transaction impacted by the past, current or attempted financial exploitation for a specified period.
Early Detection Is Key
Elder abuse is an unfortunate reality, which occurs every day. Early detection is key to helping victims find a way out. These steps can help you implement a system within your firm to recognize and appropriately respond to warning signs of elder abuse.
In line with our mission to be an educational resource and partner to RIAs, our IAR Continuing Education Program offers vital information related to early recognition and prevention of elder abuse. Contact one of our team members to learn more today.
Jason Vinsonhaler is Director, Compliance at RIA in a Box, part of ComplySci, a provider of compliance-related technology, consulting and education solutions for financial services firms