Financial Elder Abuse Prevention

Financial elder abuse is massive problem, and one we need to stop.

June 15th is World Elder Abuse Awareness Day. This is not some made-up day like National Measure Your Feet Day (January 23rd) or National Monkey Around Day. That was yesterday. (It’s a real thing. Look it up.) World Elder Abuse Awareness Day is an internationally observed day created in 2006 by the United Nations.

The purpose of WEAAD is to provide an opportunity for communities worldwide to promote a better understanding of the abuse and neglect of older persons by raising awareness of the cultural, social, economic, and demographic processes affecting elder abuse and neglect.

Elder abuse is a big problem, so join the world and take a few minutes to learn about it.

The Seven Types of Elder Abuse

There are seven types of Elder Abuse. They are:

• Neglect
• Self-Neglect
• Abandonment
• Physical Abuse
• Sexual Abuse
• Emotional Abuse
• Financial Abuse

These happen with appalling regularity to an appalling number of individuals. The first six are outside of my expertise but are worth learning about. This was a helpful resource.

We will focus on Financial Elder Abuse. We’ll cover the following:

• What is Financial Elder Abuse
• Who Commits Elder Abuse
• How You Can Spot and Prevent Elder Abuse

What is Financial Elder Abuse?

Financial Elder Abuse occurs when people take advantage of elders to steal their valuables, use their cash or credit cards, or siphon funds from their accounts. This can happen in a variety of ways.

They can abuse their position of trust to gain access to physical cards and cash. Also, they can take advantage of their role as power of attorney to make purchases on behalf of the elder without them knowing. Finally, they can gain access to the elder’s online accounts and transfer money.

Horror stories exist, and this financial abuse has led many to be financially destitute and caused significant emotional damage.

Who Commits Financial Elder Abuse?

Elder abuse can be broken down into four categories.

Family Member Abuse

According to the National Center for Elder Abuse, 53% of abuse cases were perpetrated by family members. Sometimes it’s through gaining access to the funds directly. Other times it’s by emotionally manipulating elders into giving them money. Family members can exploit the relationship and perhaps a diminished ability to recognize the abuse.

Professional Abuse

Elders often give attorneys, managers, and financial professionals a lot of trust to help them manage their funds. Trust of this kind must be placed in the right professionals. Many people have been burned by trusting the wrong kind.

Professional Abuse by Financial Professionals hits close to home for me, so I want to spend some more time on it. Let’s look at the others first.

Caregiver Abuse

Some caregivers have abused elders in their care in hospitals, nursing homes, and in-home care situations. Using their physical access to the elder’s belongings or emotional access as their daily companion, some have taken advantage to steal and harm.

Stranger Abuse

Have you ever received an inheritance from a Nigerian Prince? Or won a sweepstakes of $100,000 that you never entered? Or received an email requesting that you resubmit payment information to keep your utilities on from energycompany8298@yahoo.com?

Elders suffering from diminished cognitive capacity are more susceptible to these scams. Scammers, particularly online, are creating increasingly sophisticated scams targeting elders. Social Security and Medicare scams and attempts to gain access to financial accounts are a big problem.

Financial Advisor Elder Abuse

Financial Professionals committing elder abuse is a serious problem. The Securities and Exchange Commission (SEC), the Financial Regulatory Authority (FINRA), and the various state commissions take it very seriously, as do all the major financial firms’ compliance departments. Annual training on elder abuse is required by most firms for all financial professionals.

And yet, abuse still happens. There are two types.

Illegal Financial Abuse

When you think of financial advisor abuse, these are probably what you’re thinking of: Advisors that embezzle funds out of client accounts and other blatantly illegal things.

While terrible things like embezzlement still happen occasionally, most of that can be avoided by having your money with a trusted custodian. More on that later.

Other forms of illegal abuse include “churning,” where a financial professional repeatedly recommends the client move their money to different funds to generate new commissions, or “borrowing” client funds. These are illegal.

“Legal” Financial Abuse

What’s harder to see is the “legal” financial abuse. These are things that are technically not a crime but are unethical. While they are not just used on elders, elders tend to be more susceptible to them.

The most common kinds of abuse I see are the recommendations of bad financial products. These products often have very high fees and even higher commissions for those recommending them.

I’ve personally seen a case where a local advisor tried selling an income annuity to an 85-year-old client. These products take a lump sum of money and turn it into an income, but the lump sum is gone forever. The client would have needed to live to age 105 to break even, but the advisor would have gotten paid a hefty commission upfront. Luckily, compliance caught it and denied the product.

Cases like this fire me up because they destroy the victims’ finances and diminish the public’s trust in financial advice. It’s part of the reason I get so passionate about fiduciary advice and the systems behind it that support and enforce it.

Abuse most frequently happens with commissionable products. The big paydays awarded to those who sell them skew their ethics and insight. It’s part of the reason Errors and Omissions insurance is 3-5 times more expensive for advisors licensed to sell commissionable products than for those who are fee-only. More claims and complaints.

How to Spot Financial Elder Abuse

The Nursing Home Abuse Center had a great list of warning signs for elder financial abuse.

Possible signs of elder financial abuse include:

• Checks or bank statements that go to the perpetrator
• Forgeries on legal documents or checks
• Large bank withdrawals or transfers between accounts
• Missing belongings or property
• Mood changes (such as depression or anxiety)
• New changes to an elder’s will or power of attorney
• The elder signed strange documents they didn’t understand
• The elderly person does not understand their financial situation
• Unpaid bills and eviction notices
• Utilities being discontinued if bills weren’t paid
• Unexplained withdrawals that the elderly person could not have made

Someone may be financially abusing an older person if they:

• Are referred to as a “new best friend” by the elder
• Charge too much for products or services the elderly person needs
• Force the elder to change their will or bank accounts
• Have financial problems of their own
• Make a lot of new financial decisions for the elder
• Offer strange explanations about the older person’s financial situation
• Show a strange interest in how much money the elder is spending
• Use the elderly person’s credit cards without them knowing
• Use the possessions or property of an older person without their permission
• Use trusted positions as a way to gain the confidence of the elderly person

If you see any of these signs, speak up!

Reporting Financial Elder Abuse

You can report elder abuse to:

• Adult Protective Services (state specific)
• Financial Institutions such as Banks or Custodians
• Law Enforcement
• Ombudsmen of care facilities

How to Prevent Financial Elder Abuse

While reporting and stopping elder abuse is important, it is even better to prevent it in the first place. An ounce of prevention is worth a pound of cure and likely a ton. Depending on your demographics, you should take action on these preventative measures for you and your aging parents.

Security

Having and maintaining proper account security is paramount. Online banking and account control have made things easier for users and abusers. Strangers, professionals, caregivers, and family members have all taken advantage of online access to steal money.

Here are a few general tactics to keep your accounts secure.

• Two-Factor Authentication – If knowing the username and password is all it takes to gain access to your account, it’s only a matter of time before it is hacked. While simple password protection may be sufficient for your Netflix account, it’s not for your banking and retirement accounts. Ensure you have two-factor authentication enabled. Most custodians require it now. Ensure you also have it on your email, as that is the gateway to most of your other accounts.
• Never Give Out Your Password or Security Code – Social Security, banks, financial custodians, and any other legitimate company will never ask you for your password or to pass along a security code. If someone posing to be from an institution you trust contacts you asking for it, hang up.
• Verify Email Requests – Double-check that emails from your institutions are actually from them. Scammers can disguise their fraudulent email addresses by masking them with a legitimate-looking one. Double-clicking on the sender’s name will show you the true email address. There is a big difference between getting an email from Support@Schwab.com and SchwabSupport1x1@gmail.com.
• Insist on Voice Instruction – If we get an email from a client requesting new distributions we haven’t talked about, we always give the client a call. The last thing we want is for someone to hack your email and then process a bunch of withdrawals using the email we have on file.

Fiduciary

I often talk about this, particularly in Episode 88, “What is a Fiduciary?” So I won’t talk about it too much here. But again, most of the professional financial abuse happens with commission-based products. This can be avoided by working with a Fee-Only Fiduciary. If your professionals aren’t working in your best interest, why are you working with them?

Transparency

Sin is supreme in secrecy. Whether you believe in God or not, we can all agree that abusing elders is a sin. People get away with it because it’s happening in secret. Bring it into the light, and it dies.

Transparency defends against strangers by having trusted family members see what’s happening in accounts.

Transparency defends against untrustworthy family members by revealing the situation to other trustworthy family or trusted professionals.

What if your professional is not trustworthy? Transparent professionals are more likely to be. It’s much harder to abuse elders when the fees are displayed on every statement, and at any point, the elder can leave the professional with no penalties or surrender periods.

I have a single client in her seventies who came to me from a commissioned advisor at the encouragement of her son, who was researching the fiduciary standard. He Zooms into every client meeting to ensure his mom gets excellent advice. I’m happy to have him.

Transparency helps.

Custody

A custodian is a company that holds your money. The most popular custodians are (in no particular order):

• Charles Schwab
• TD Ameritrade
• Fidelity (also under the National Financial Services name)
• Pershing
• Vanguard

You want your money to be with a big-time custodian.

Remember Bernie Madoff? People were writing checks directly to him. His company was the custodian. That’s why he could steal it.

Or perhaps you’ve watched the show Ozark on Netflix. There’s a scene where the main money-laundering character is meeting with an elder. He convinces her he’s a practicing financial advisor and to transfer her money to him. She does, and in the next scene, he promptly steals all of it and falsifies statements to make her believe she still has it. The reason he can do that is because there was no custodian.

Ensure your accounts, and those of any older family members, are held at a reputable custodian. We use Charles Schwab and have been happy with them.

Using a custodian adds layers of security to reduce or eliminate the chances of money being stolen.

Trusted Contact

Perhaps you or your parents have reached an age where they want to increase transparency without handing over any authority. You can now add a Trusted contact to virtually all accounts in the U.S.

A Trusted Contact is someone you trust that you want to grant view-only access to your accounts. They can log in and see your accounts, transactions, and fees without being able to make changes or withdraw money.

A Trusted Contact is a great way to add transparency and a second set of eyes to watch for signs of elder abuse. I recommend that people consider adding a Trusted Contact at age 60 and get one on their accounts by age 70.

Financial Power of Attorney

If you want to grant authority rather than simple transparency, you will want a Financial Power of Attorney.

Granting Financial Powers of Attorney to another individual allows that person to act on your behalf. This can include or exclude any of the following:

• Make financial decisions
• Open accounts
• Transfer money
• Make payments
• And many more.

We covered Financial Power of Attorney in our Estate Planning Essentials Workshop. Here are a few items to consider.

Scope of Power

A General Power of Attorney gives the person control over all financial matters.

A Limited Power of Attorney gives the person control over specified financial matters.

Depending on where you or an older family member are, you might consider one over the other.

Now or Later?

One of the main reasons to add a Financial Power of Attorney is to ensure someone you trust will make decisions in your interest when you no longer can. Many folks eventually lose the “capacity” to make decisions, even if only for the last few weeks or months of their life.

Do you want your trusted person to have financial power now while you still have capacity? Or do you want to wait and trigger that power only when you lose capacity?

A “Springing” Power of Attorney” “springs” into effect when you lose capacity. They’d have no power until that happens. Minimally, everyone should have one of these.

A “Non-Springing” Power of Attorney would be effective when you sign it.

Power Through Transition?

If you give someone Power of Attorney now, would you want that to continue through the point where you lose capacity?

A Durable Power of Attorney will maintain financial authority before and after capacity is lost.

A Non-Durable Power of Attorney should be used if you want to give someone financial authority now while you can also monitor what they are doing, but that authority would lapse if your capacity does. This works well when you give someone authority for convenience, but you wouldn’t want it to continue when you can no longer work with them.

One strategy is to have a Non-Durable Non-Springing Power of Attorney now and a Springing Durable Power of Attorney for if and after you lose capacity. The powers would automatically switch.

Generally, you need a signed statement from two attending physicians stating that you have lost capacity for a POA to become or lose its effectiveness.

Conclusion

Financial Elder Abuse can be perpetrated by family, caretakers, professionals, or strangers. They abuse trust or position to steal money or influence elders. You can spot elder abuse if you know the signs, but preventing it is much better.

Prevent financial elder abuse for you or your family members by ensuring the following:

1. Security – Your online accounts are secure.
2. Fiduciary – You are working with someone operating in your best interest.
3. Transparency – Professional dealings and fees are fully transparent.
4. Custody – Your accounts are with a reputable custodian, such as Charles Schwab, Fidelity, Vanguard, or Pershing.
5. Trusted Contact – Between ages 60 and 70, grant view-only access to your accounts to someone you trust.
6. Financial Power of Attorney – Minimally, you should have a springing FPOA for if and when you lose capacity. You may consider granting the authority to someone now. See our Workshop for more details.

Together, we can prevent Elder Abuse. Thanks for joining me, and have a great World Elder Abuse Awareness Day.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.