The American population continues to age, and more and more baby boomers are entering their twilight years. Every day, 10,000 Americans reach retirement age; and baby boomers are retiring with the lion’s share of U.S. disposable wealth. Advisors have the opportunity of managing not just senior clients’ accumulated wealth, but the legacy of assets their elder clients will pass on to the next generations. However, with the opportunity also comes an increasing responsibility of advisors to protect these clients from the very real and growing risks of financial loss at the hand of unscrupulous fraudsters and, at times, even family members.
There are two risks which are foremost for aging investors: diminished capacity, or dementia, and financial exploitation.
- Diminished Capacity
The loss of cognitive capacity among seniors has seen a significant increase over the years. It most frequently manifests as Alzheimer’s disease, but can also be the result of vascular dementia, which can commonly occur after a stroke. The Alzheimer’s Association estimates that the numbers for those suffering from this and other forms of dementia will rise markedly over the next 30 years. Unfortunately, seniors suffering from diminished mental capacity are too often the victims of individuals and organizations that would take financial advantage of their memory loss and the confusion that often results.
- Financial Exploitation
While equally sinister, financial exploitation can be more clandestine and takes many forms. Even alert and cognitively agile elder clients are targets for financial abuse and scams. The scams can take many forms, and they are widespread and often underreported. Some reports estimate that one in twenty seniors has been a victim, yet only 2-3% of incidents are ever reported. Unauthorized check writing and property transactions, as well as lottery scams, inappropriate or unauthorized investments and insurance products, and cyber fraud phishing scams are among the possibilities. And the list goes on. The culprits are widespread, and many times are family members.
What to Look For
All advisors should be aware of the signs of financial exploitation and diminished capacity. With the latter, indicators can be behavior and actions that seem unusual, confused, or simply out of sorts compared to prior dealings with the client – ‘Know Your Client’ (KYC).
Exploitation signs include the unexpected addition of authorized persons or beneficiary changes. In addition, the appearance of an individual unfamiliar to the advisor at client meetings or on a call can be a red flag. A client discussing unusual investments or something ‘a friend recommended’ can be another sign. Multiple calls in a short time frame or seemingly irrational account movements are also signs something may be amiss. The common thread in exploitation and capacity questions is that something seems odd. In all, for advisors, here is another case where KYC is essential.
The financial damage that may occur to advisor clients can be substantial, and advisors and their agents must be aware of threats. The number of Suspicious Activity Reports (SARs) filed with government authorities for financial exploitation of seniors has quadrupled in the past decade. The financial risk to seniors is considerable, and clients can lose a lifetime of savings without being aware.
In light of the growing problem, advisors can also face significant risks as well. Lawsuits from family members who believe the advisor failed to act in the best interest of their parent are not uncommon and can mean significant monetary liability. Also, regulators are increasingly focusing on the issue. Sanctions, fines, and penalties against the advisor can result. Even if exonerated, the very fact a complaint was registered could put an advisor on the radar of regulatory agencies for years to come. Then too, there is the reputational risks that advisors would face even from allegations which were made against them.
In conclusion, senior investors face real and growing risks from financial manipulation and fraud as they enter retirement and their later years of life. The threats are real, and advisors must be aware of the signs and prepared to act when they suspect an issue.
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.