Protecting seniors from financial exploitation is a joint effort

As the benefits of increasing life expectancy expand in the United States, so too grows the risk of financial exploitation and cognitive decline among our aging population.  June 15^th is World Elder Abuse Awareness Day, reminding us that our seniors are at risk and that more can and must be done to protect them from fraud and abuse. This is an emerging issue for the financial services industry, regulators, and aging advocates, and one that we all take very seriously.

We’re not just talking about fraudulent phishing emails offering to wire millions in exchange for account information. In fact, most would be surprised to learn that financial exploitation usually occurs much closer to home. An estimated 55 percent of financial abuse in the U.S. is committed by family members, caregivers, and friends.  

{mosads}To make matters worse, financial exploitation of older adults is frighteningly common.  Roughly 1 in 5 Americans aged 65 or olderhave been victimized by financial fraud, and have consequently lost an estimated minimum amount of $2.9 billion per year according to a MetLife study. This means that, of those 10,000 Americans turning 65 daily, an estimated 2,000 of them will likely be victims of financial fraud. 

In today’s world, it’s not just the threat of exploitation that raises concerns. It’s also the emerging health issue of increased incidence of dementia and Alzheimer’s. As our brains age, studies show that seniors are more prone to risk taking behaviors. Pair that with longer life expectancies and the onset of dementia and Alzheimer’s that diminish cognitive abilities, and seniors are not only more vulnerable to scams, but also to impairment of judgment that could result in riskier behavior.

Addressing these risks is a top priority for banks and broker dealers that provide financial advice and manage wealth for millions of Americans. The industry cannot do this alone, so we are collaborating with lawmakers, regulators, medical experts, and advocates for the elderly to better understand the issues involving financial exploitation and cognitive decline and to implement practices to address the risks.

Unfortunately, many of the laws and rules governing the relationship between the advisor and the client were designed for a different time. Take, for instance, the first time a client exhibits unusual behavior, such as seeking to transfer funds in response to an obvious phishing scam or to an acquaintance. Or the client seeks to make an unusual and out of character trade that would clearly not be in their best interest. The firm must execute the transaction or be sanctioned by state and federal regulators. While understanding cognitive decline or acting as a detective to catch the perpetrator is beyond the function and profession of the financial advisor, there should be rules and protocols in place that allow that advisor to take action when warning signs appear.

To solve this problem, the financial services industry is working with state and federal policymakers, and regulators, and advocates, to develop a reporting mechanism that would allow advisors to temporarily hold a suspicious transaction and report it to appropriate state agencies.  The temporary hold would then provide the necessary time so that the agencies can investigate the situation and stop exploitative transactions before they occur. 

We are also seeking to advance proposals that would allow firms to provide relevant records to agencies aiding in financial exploitation investigations without fear of violating privacy laws, as well as to reach out to trusted third parties if concerns arise.

Congress also has a role to play and we welcome the leadership of Sens. Susan Collins (R-Maine) and Claire McCaskill (D-Mo.) and Reps. Kyrsten Sinema (D-Ariz.) and Bruce Poliquin (R-Maine) for introducing the Senior$afe Act. This important legislation will allow firms to disclose cases of potential senior financial exploitation without the fear of legal ramifications. We thank Congress for swiftly moving this bill to the floor for a vote, so that it may become law.

States are also taking action. Washington, Delaware, Missouri, Indiana and Alabama  have enacted laws to address the issue and provide financial firms with the tools, procedures and assistance they need to prevent exploitation. Other states have pending legislation.  We applaud their efforts and urge others to take similar measures.

Financial advisors are increasingly finding themselves confronting potential senior financial fraud or cognitive issues with their clients. However, tackling this issue must be done in collaboration, which is why the industry continues to work with key agencies like Adult Protective Services, lawmakers, regulators and partners such as FINRA and NASAA. Together we continue to develop policies and practices that move us toward our shared goal of protecting the investments of aging Americans. 

Kenneth E. Bentsen, Jr. is the president and CEO of SIFMA (Securities Industry and Financial Markets Association). Kathleen Quinn is the Executive Director of NAPSA (National Adult Protective Services Association).