Scams Can Cost Seniors $42K or More: How Advisors Seek To Curb the Issue

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As new fraud trends emerge and scammers continue to prey on vulnerable seniors and their investments, regulators are coming together to discuss preventative strategies — and are calling upon financial advisors to do more to fight the exploitation of older at-risk Americans.

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The North American Securities Administrators Association’s (NASAA’s) continuing “Senior Issues and Diminished Capacity Committee” webcast series is giving authorities the chance to review recent threats and scams, education and training, and detailing “how the states, the SEC (Securities and Exchange Commission), FINRA (Financial Industry Regulatory Authority), and APS (adult protective services) agencies work together, and separately, to stop investor harm.”

Despite the best collective efforts of organizations like NASAA and the individual agencies’ enforcement programs in place, elder financial fraud is on the rise.

Between 2013 and 2017, the Consumer Financial Protection Bureau (CFPB) found that American financial abuse victims over 70 lost on average $41,800 to fraudsters. In its latest Protecting Older Consumers report, Federal Trade Commission (FTC) data revealed older adults were victimized out of over $1 billion in 2021, at least in terms of how much fraud was actually reported. The FTC noted that since most fraud goes unreported, the real amount of fraud committed at elder Americans’ expense is much higher.

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Unfortunately, it is assumed that all fraud numbers are grossly marginalized due to widespread underreporting. As CNBC noted in 2019, only one in 44 financial abuse cases gets reported, according to the National Adult Protective Services Association (NAPSA). The actual cost to vulnerable American seniors was estimated at between $3 billion and $37 billion a year.

How Financial Advisors, Counsel Can Help Prevent or Reduce Financial Fraud Vicitimizing Seniors

But what can an advisor do in their capacity as a trusted financial counsel? It’s a given that a consultant has a moral obligation to act upon suspicious activity or a perceived threat to a client’s finances, but do they have a fiduciary obligation to intervene when the client has the final word?

According to Knut Rostad, the president of the Institute for the Fiduciary Standard, the situation becomes particularly difficult when the advisor/client relationship is breached by an outside party.

“Of course, if you’re working with Mr. Smith, who’s 90, and you see from his accounts that funds are going somewhere and you have no idea where, and Mr. Smith himself can’t explain, there is definitely an ethical obligation to do something,” said Rostad. “But, in that scenario, there’s a big question if that’s part of your fiduciary obligation.” 

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However, advisors have ways to mitigate fraud. As Financial Planning stated, a new SEC rule was approved in January which grants permission to advisors to freeze accounts for 25 days when fraud is suspected. These holds are allowable on accounts held by those 65 or older (or who have disabilities) and can be extended by 30 days if the financial advisor has reported the suspicious fraudulent activity to regulators.

Additionally, while not as drastic as a client or family member recording power of attorney (or co-signer authority) as an extra layer of protection on an account, the FINRA “trusted contact” rule helps an advisor or firm to identify a trusted contact person and provides circumstances when this person can and cannot be contacted.

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And then there is Senior$afe, a training program promoting greater awareness among those working in the financial services industry — including broker-dealers, investment advisers, banks and credit unions — that is available through NASAA and state regulators.

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry.
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