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Financial Exploitation of Elders–What You Need To Know.

Financial Exploitation of Elders – What You Need to Know

Due to age and the impairments that accompany it, our elderly population is, unfortunately, at a high risk of being taken advantage of financially.  Elderly investors are vulnerable to financial exploitation and investment fraud due to a general desire to trust their financial professional, and the difficulty of keeping abreast of the ever-changing financial, retirement, annuity and insurance products marketed by Wall Street.

By the year 2030, all baby boomers will be over the age of 65.  By 2035, the amount of people over 65 will be greater than those under the age of 18 for the first time in history.  Naturally, a substantial amount of wealth and retirement savings will be found in this demographic.  However, close to 20 percent of people over the age of 65 have some form of cognitive impairment.  For those over 85, more than half have Alzheimer’s disease of some other form of dementia.  The aging of our investor class presents inherent opportunities for the unscrupulous promoter of unsuitable investments, or those intent on defrauding others.

Financial exploitation of elders can happen in an array of circumstances, and is emerging as one of the most common forms of elder abuse.  While financial abuse of elders may come in many forms (think telemarketers and greedy family members), this post will discuss financial exploitation in the investor/broker/adviser relationship and the rules and regulations brokers should follow to ensure that their elderly clients do not fall victim to financial abuse.

In good news for the growing elderly population, recent legal and regulatory developments provide financial professionals the tools to ensure their elderly clients are better protected from financial mayhem. For example, the Financial Industry Regulatory Authority (FINRA) issued two rule changes that went into effect in February 2018.

Specifically, FINRA adopted Rule 2165, permitting members to place temporary holds on disbursements from accounts where the broker reasonably suspects financial exploitation.  This rule, however, does not create an obligation to withhold a disbursement of funds or securities.  It merely gives them the discretion to do so. If broker-dealers will be proactive when they detect potential abuse, they can help protect unsuspecting investor victims.

Additionally, FINRA Rule 4512 was amended to require its members to make reasonable efforts to obtain contact information for a trusted contact person on a client’s account. The trusted contact is a person that the broker may contact and disclose information about the client’s account, health status, and, in some cases, the client’s whereabouts if the broker is unable to contact the client directly.  The new rule and amendments provide members with an avenue to respond to situations when the member has a reasonable basis to believe financial exploitation has or will occur.

In addition to the FINRA rules discussed above, many states have adopted new laws in an effort to protect the elderly from financial exploitation.  The new laws also include provisions allowing designated brokerage firms to place temporary holds on disbursements from accounts where the broker suspects financial exploitation.  For example, Texas passed H.B. No. 3921 in 2017 (effective September 1, 2017).  This law was enacted to protect elderly persons from financial exploitation, and includes provisions for reporting financial exploitation, notifying third parties of suspected financial exploitation, and placing temporary holds on transactions is certain cases of suspected financial exploitation.

Despite the laws and regulations in place to combat against the financial exploitation of elders, the abuse still exists.  If you or someone in your family suspects they are being taken advantage of financially by a trusted broker, there are some things you can look out for.  First, a broker’s sudden and growing interest in yours or a family member’s financial assets may signal that abuse is likely to occur.  Additionally, unusual account activity that you were not informed of or expecting, or efforts to entice you to change your estate planning documents are red-flags that abuse is occurring or imminent.  For more tips to protect yourself from investment fraud, read here.

Any abuse or signs of abuse by a broker in a broker/client relationship should be reported to the regulatory authorities.  Brokers must follow FINRA guidelines and are subject to disciplinary actions, which could result in suspension or expulsion of their license.  Elder abuse by a person in a position of trust and confidence, such as a financial professional, may also be subject to criminal charges.  However, while reporting suspected abuse may cause the regulators to investigate the matter, and potentially bring charges or disciplinary action against the broker/adviser, the regulatory process MAY NOT be the best way to recover lost or stolen funds.  Generally, the best course is to contact an experienced attorney to review your case, and provide you specific advice on whether reporting to the authorities is appropriate, and when such report should be made and to whom.

For more information on the financial exploitation of elders and any remedies that may be available to you, please contact us.

Thank you for reading, liking, and forwarding!

Bryan Forman



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