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The Rising Problem of Financial Fraud on Seniors

As a result of medical advances and improvements in nutrition, life expectancy is on the rise. It has been estimated that a man who turns age 65 has a life expectancy of 84.3 years.  The life expectancy of a 65 year old woman is 86.7 years. Furthermore, approximately one in four 65 year olds will live past age 90 and one in ten past age 95.  

Unfortunately expanded longevity is often accompanied by financial exploitation. Based on an oft referenced MetLife study of Elder Financial Abuse released in 2011, it was estimated that 5 million older Americans were financially exploited each year by scammers for approximately $2.9 billion dollars.  Just recently in a study conducted by Comparitech, a consumer research organization based in the U.K., it was reported that losses may now exceed $27.4 billion per year.  Comparitech estimated that one in ten people in the U.S. over the age of 65 was victimized by elder fraud last year.  The average loss per case based on reported numbers is $2,415.  

There are two main types of fraud – elder fraud and financial abuse.  Most people are familiar with schemes that involve a phone call from a supposed relative claiming to be in a financial predicament that requires a transfer of funds to resolve the problem.  However, almost 60% of cases involve a family member where the elderly victim is unwilling or unable to seek justice.  Often, the manipulation may involve violence or the threat of force.  

Despite the growing severity of this problem, there was a significant delay before the Federal government finally devoted the resources necessary to investigate suspicious activity.  In February 2017, the SEC approved FINRA Rule 2165 which permits a broker/dealer to place a temporary hold on disbursements of funds or securities from the accounts of a senior if there is a reasonable belief that the client may be the victim of financial exploitation.  This rule was followed by Rule 4512 that requires a broker dealer to make a concerted effort to contact a trusted person about the customers’ account if fraud is suspected.  

There are various warning signs that may provide clues if fraud is occurring.  First, the senior unexpectedly changes their estate plan such as wills, trusts and power of attorney.  If there are sudden increases in financial transactions, such as check cashing, transfers of funds and withdrawals, these actions may represent a sign.  The opening of new brokerage accounts or transfer of assets to a new investment firm is yet another red flag as well as suspicious increases in investment activity or a change of investments.  Finally, if the senior becomes secretive or reluctant to disclose financial matters, there may be sinister outside influences.  

Proactive monitoring of financial behavior can prevent seniors from becoming victims. Measures that can taken by friends or family members include:

  1. Actively participating in seniors’ financial decisions 
  2. Ignoring requests for bank information, credit card numbers or social security numbers from a caller
  3. Immediately terminating contact with a sales person who fails to disclose written information on his company
  4. Requiring a certified letter on official government stationary if someone calls identifying themselves as a government official
  5. Visiting the homes of elderly relatives regularly
  6. Warning parents never to hire someone who shows up at their door
  7. Exhorting parents to never make an on the spot financial decision
  8. Avoiding investments that promise huge profits with no risk
  9. Placing senior’s phone number on the National Do Not Call Registry

Of course, many seniors become either mentally or physically incapacitated requiring someone to step in as a financial representative.  Perhaps the best way to deal with this decline is to execute a durable power of attorney that allows a named agent to act on behalf of the senior.  Not only does this move ensure that the seniors’ investments are properly managed, it can be viewed as a preventive measure against any possible fraud.  The agent would have the legal right to make investment and distribution decisions. However, there are many documented cases of abusive and criminal behavior by the named agent.  Careful attention is imperative to name a person with the competence, integrity and time to effectively perform these functions. 

In summary, seniors are, perhaps, the wealthiest segment of the population but also the most vulnerable to abuse. It is important that family members and close friends be diligent in monitoring any unusual financial behavior. The failure to do so could be calamitous.  

Sincerely,

Clifford L. Caplan, CFP®, AIF®                                                                                                                                                                       Stephen Caplan


In The News: In an article titled “Top Alternative Investments to Consider for your IRA” written on April 9, 2019 in Gold IRA Guide, I expressed my view on options I use for my clients’ IRAs.