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Elder Financial Abuse: Why Banks and Advisers Are Stepping Up

What new regulations and a new law do, and don't do, to help


If you’re worried about your parents becoming victims of elder financial abuse, you’ll be cheered to hear that financial advisers, brokers and banks are taking serious steps to detect and halt the fraud. That’s due to new rules from the brokerage industry self-regulator FINRA and a 2018 law called the Senior Safe Act.

“Banks and financial services firms are really making great strides,” said Jen McGarry, head of RBC Wealth Management’s Client Risk Protection Division, who is based in Minneapolis.

But more older Americans would be protected if the FINRA rules went even further. And that could help a lot, since roughly 5 million of them are scammed each year, totaling an estimated $3 billion annually. “The family can take a big hit,” when elder abuse occurs, said McGarry.

FINRA — the Financial Industry Regulatory Authority — last February adopted two rules approved by the Securities and Exchange Commission (SEC) to combat elder abuse.

The Trusted Contact Rule and Elder Financial Abuse

One is the “trusted contact” rule, which says that when brokers and financial advisers open new accounts or update current ones, they must make a reasonable effort to get the name and contact information of a trusted contact for that person. This way, if something seems suspicious — such as the client wanting to make an uncharacteristically large withdrawal or showing what seem like signs of cognitive impairment — the financial professional can speak with the trusted contact about it.

“The trusted contact rule is a step in the right direction,” said Elizabeth Loewy, co-founder and COO of EverSafe, a financial firm that helps prevent elder financial abuse.

The trusted contact rule can be especially useful if a client has signs of dementia and is confused about his or her finances. And many older customers like the trusted contact idea. An AARP study found that 50 percent of older Americans want their financial institution to simultaneously alert someone else who they’ve pre-identified if more than a certain amount of money is withdrawn from the account.

Keith Fenstad, a partner at Tanglewood Total Wealth Management in Houston, said that his firm and Charles Schwab — its primary custodian for clients — sent out letters this week to clients age 70 and older asking for a trusted contact if either firm suspected elder abuse. That way, Fenstad said, “we could reach out to explain details of the situation.”

Clients younger than 70 will get an email asking for trusted contact information. “We think older clients will be less apt to print out something from an email and scan it and send it back,” said Fenstad. “We wanted to make it easier for them.”

How the Trusted Contact Form Can Help

Here’s how having a trusted contact form can help: McGarry said her firm had a client in her 90s who wanted to withdraw over $200,000 of her holdings but couldn’t provide a good reason why. “We spoke with her trusted contact, her grandson, and he said: ‘That’s not right. There’s no way she needs that kind of money.’” After talking with his grandmother, he deduced she was experiencing cognitive decline. So the RBC folks wound up not distributing the money and the woman was okay with that, McGarry said.

The trusted contact rule is different from having a Power of Attorney.

“The trusted contact is not privy to specific account details, like balances,” said McGarry. “We might say, ‘Your mom has you as a trusted contact and we have concerns about the account. We’ve noticed anomalies in her behavior and want to reach out to the person who can guide us.’”

The trusted contact rule can help drive important conversations with clients ”about protecting them from scams or assisting them if they become incapacitated,” McGarry said.

The Problem With the Trusted Contact Rule

But here’s the problem: the adviser or broker doesn’t have to get a trusted contact for existing clients unless their accounts are being updated. That means many clients won’t be asked for a trusted contact until it’s time for an annual review. McGarry estimates only a quarter of her firm’s clients have a trusted account on file.

“I think they [the SEC and FINRA] didn’t want to make it onerous so that every account holder would be contacted for a trusted contact,” said Loewy. “Maybe they’ll get there eventually.”

She noted that when speaking with financial industry members about the rule at a Securities Industry and Financial Markets Association (SIFMA) conference last week, some said their clients wouldn’t provide a trusted contact.

“My feeling is the way in which the broker or investment adviser approaches the conversation probably makes a big difference. Some advisers say: ‘How am I supposed to talk about the fact that you’re getting older and odds are one day you’ll have dementia or Alzheimer’s?’ I think broaching it in a different way — by saying there are new regulations so if we can’t find you and think there is suspicious activity on your account, we can get in touch with that person — that goes a lot better. It certainly would for me,” said Loewy.

Pros and Cons of Rule for a Hold on an Account

The other FINRA rule, which is voluntary, lets a broker or financial adviser place a 15-day hold on disbursements from a client’s account (with a possible 10-day extension) if the money pro suspects financial exploitation.

That sounds helpful, but there are a couple of problems here, too.

For one, it can easily take more than 15 days to investigate a potential case of financial exploitation.

“Fifteen days is often not nearly enough” to conduct a thorough fraud investigation, said McGarry. An Investment News story said that Ashley Hulting, an attorney with TD Ameritrade, noted at the SIFMA meeting that her firm is “almost never” able to conduct a thorough elder fraud investigation within 15 days. Some financial industry staffers are hoping to change the FINRA rule to lengthen the hold time.

Another problem: the FINRA rule doesn’t let one firm suspecting financial elder abuse from contacting another firm the client uses. For instance, if the person has money at both a bank and a brokerage firm and the brokerage firm spots something unseemly, no one at the brokerage can notify the bank to see if something fishy might be going on there, too.

How The Senior Safe Act Is Helping

The Senior Safe Act is likely a key reason why the Wall Street Journal recently said U.S. banks reported a record 24,454 suspected cases of elder financial abuse to the U.S. Treasury department last year. That was more than double the number in 2013 and 12 percent higher than in 2017.

The bipartisan law, which Next Avenue wrote about when it passed in May 2018, protects banks and financial advisers from liability and privacy violations if they alert police or Adult Protective Services about potential elder financial abuse. The law also calls on financial institutions to better train staff so they can spot possible elder fraud. It was spearheaded by Sen. Susan Collins (R-Maine), former Democratic Senator from Missouri Claire McCaskill and former Republican Representative from Maine Bruce Poliquin.

“I’m delighted that the Senior Safe Act applies to all financial institutions,” said Loewy. “It’s broader than the FINRA rules.”

The Wall Street Journal recently said Coastal Credit Union in North Carolina, which trains its staff about elder financial abuse, now reports roughly one potential case a month to the Treasury Department. A few years ago, the credit union only reported one or two cases a year.

Richard Eisenberg
By Richard Eisenberg
Richard Eisenberg is the Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the site. He is the author of How to Avoid a Mid-Life Financial Crisis and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch.@richeis315

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