Preventing Financial Abuse of Aging Clients

Retirement plan advisers do more than help shape their retired clients’ finances; they can and indeed must play a part in making sure their clients are treated equitably.

Art by Lars Leetaru


Anecdotal evidence and large scale surveys both show financial exploitation of seniors is all too common.

According to a new report on financial elder abuse published by AIG Retirement Services, almost half of Americans ages 65 and older handle their own savings, investments and assets. While financial exploitation of this group is far from the norm, it is clear that isolation and a lack of expert support can leave even financially savvy individuals exposed to potential mistreatment.

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Part of the challenge for all investors—but especially for those who may be aging and experiencing cognitive decline—is the sheer complexity of most financial products and services on the market today. In addition, the legal framework that surrounds the issuance of the power of attorney is far from intuitive. Indeed, the AIG survey finds 66% of seniors are unsure if they ever signed a document granting someone power of attorney, and many say they are lost on how to do so.

“Elder abuse is such a critical issue,” says Michele Kryger, head of AIG’s elder and vulnerable client care unit. “Financial advisers are really in a unique position to see the red flags that otherwise would go unnoticed.”

Retirees and seniors are warned of the common red flags in financial exploitation—pigeon drop scams on the phone, invoice scams on the web—but Kryger says advisers should also pay attention to more direct forms of abuse, such as instances involving children or loved ones. While 90% of seniors in the AIG survey are aware of the 10 most common financial scams, 81% are confident that no one close to them would financially take advantage of them. Sadly, survey data and anecdotal information show this isn’t always the case.

Family Abuse Is Surprisingly Common

Elder financial abuse involving someone the victim knows looks a lot different from other cases involving strangers, Kryger says. The normal types of preventative measures—teaching people to ignore fake calls, email scams, etc.—really don’t help prevent this type of abuse. Another challenge is that, when it comes to assessing whether a client is being harmed by a loved ones, the warning signs can be much more subtle and the conclusions more nuanced.

Clearly, because a family member has easier access to authentication factors for bank accounts and credit statements, preventing this sort of abuse is trickier for financial professionals. The only solution is to pay close attention to an investor’s behaviors and statements. Keep a close eye on withdrawals, understand what the senior’s financial goals are, and keep tabs for when suspicion arises. If an investor suddenly starts forming a tighter relationship with a family member while growing distant from others, that could be a red flag, Kryger suggests. Or, if a large withdrawal is repeatedly being made from an account that previously went untouched, that could be another.

“Prevention also includes raising awareness with both the client and with family members about what you can all do to solve this,” she says. “Having seniors not believe and acknowledge that this can happen to them makes prevention more challenging. If you know or believe something could happen, you’re obviously more likely to put a protection in place that can prevent it.”

The Legal Obligation of Advisers, and Investors’ Role   

Aside from a moral and ethical perspective, financial professionals have a legal obligation to report fraud or any suspicion. In normal circumstances, placing holds on customer accounts and delaying disbursements is not allowed, but in the case an adviser suspects elder financial abuse, safe harbor protections are available under the law.

In 2018, the Senior Safe Act was passed to provide immunity to financial institutions, advisers, broker/dealers and insurance companies who report financial exploitation, but only if qualified employees were trained on how to identify and recognize financial abuse beforehand. Additionally, the Financial Industry Regulatory Authority (FINRA) passed two rules last year advising brokerage firms to obtain a designated, trusted contact’s information when opening up a senior investor’s account, and offering protection to broker/dealers who place temporary holds on accounts due to a suspicion of financial abuse. If there are signs of financial abuse, these institutions can either contact the trusted source or, if needed to protect the senior, place a brief hold on the account while an investigation is run.

To ensure financial professionals understand the signs of cognitive decline, the Securities and Exchange Commissions (SEC) recommends firms train their employees on the common symptoms. If a financial adviser finds that a senior investor is displaying signs, they are likelier to follow and address them before abuse could occur.

Experts agree that it is important for older investors to understand their abilities as they age, and to acknowledge the potential impact cognitive decline, dementia or Alzheimer’s disease could have on their ability to make financial decisions that are in their own best interest or, if applicable, in the best interest of their family.

“One of the most important questions to ask early on in the process is, what kinds of preventative measures can we put in place to prevent problems in the future?” Kryger concludes. “We educate our financial advisers to have these conversations early in the relationship. Don’t wait until someone is getting to the point where they’re becoming very forgetful or their more prone to fall into a scam.”

‘FINRA Settlement Expungement Process Is Broken,’ Former Regulator Says

FINRA is advancing a proposal to modernize the process by which brokers can clear their records of past customer disputes, but one former regulator questions whether the proposed approach fixes some fundamental issues of transparency and fairness for consumers.

Art by Meredith Miotke


During its meeting in late September, FINRA’s Board of Governors approved proposed amendments to the “Codes of Arbitration Procedure” to create, among other things, a roster of specialist arbitrators with enhanced training and experience, from which a panel would be selected in certain instances to rule on a broker’s request to expunge customer dispute information.

The proposed amendments will next be filed with the Securities and Exchange Commission (SEC), which is tasked with approving such actions at FINRA.

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According to Laura Posner, a partner at Cohen Milstein and a member of the firm’s securities litigation, investor protection and ethics/fiduciary counseling practice groups, the proposal represents a step in the right direction for what she consider to be a “broken” expungement process.

However, she argues, the FINRA proposal misses an opportunity to address other fundamental problems that exist in the arbitration system that have allowed far more expungements to occur than were anticipated in the creation of the current customer dispute expungement process. Namely, the proposal does not change the fact that expungements are addressed through an arbitration process that structurally favors financial institutions and brokers over individual investors. As such, she wonders whether FINRA’s special arbitrators will run into the same issues that currently allow for an excess of expungements.

“The current system was created, theoretically, for expungements to be a rare occurrence,” Posner says. “That is absolutely not what has happened.”

This is primarily because, once a customer dispute case settles or is otherwise resolved, there is not a lot of motivation on the part of the individual consumer to then get involved again months or years down the road in a second round of arbitration debating whether this record should be expunged. The vast majority of normal, everyday people are just not going to spend the time, money and energy to be involved in this second step.

“So, expungement has become a completely one-sided situation and, unfortunately, it has become a real problem for transparency and fairness,” Posner says. “We hope the new approach will help resolve this issue, but we also want to see FINRA do a lot more to protect consumers.”

First Hand Experience

Notably, prior to joining Cohen Milstein, Posner was appointed by the New Jersey Attorney General to serve as the Bureau Chief for the New Jersey Bureau of Securities, the top securities regulator in New Jersey. This experience, she says, showed her clearly that FINRA’s expungement system is in serious need of adjustment.

“As a general matter, I think the FINRA expungement process is quite broken,” Posner says. “I should also say, my opinion is that there is not really an appropriate place for expungement of brokers’ CRD records in the first place, except for in very rare and specific situations—say in a case of mistaken identity.”

As Posner explains, investors who have a dispute with their broker are already forced into a complex arbitration process by FINRA. For the typical investor, this is going to represent a potentially lengthy, expensive and intimidating affair.

“And so, when an investor does make the effort to come forward and file a complaint and then goes all the way through the arbitration process, we should respect that,” Posner says. “In my view, to allow a complaint or settlement to be expunged from a broker’s record is clearly problematic from the consumer protection perspective. This system doesn’t allow investors to do their due diligence effectively when selecting a financial professional to work with. It is also very problematic from the state regulators’ perspective.”

Recalling her experience as a state securities regulator, Posner says it is not uncommon to come across brokers that have a handful or even a dozen marks on their record. While there is nothing inherent in such a record to suggest that a firm or broker is currently engaging in problematic activities, it is nonetheless important for the state regulators to know this information.

“The state regulators must be able to see the trends and stop problematic activities before they get much broader,” Posner says. “If FINRA is preventing this information from being out there and studied, they will really hamstring what the state regulators are supposed to be doing.”

Posner shares another, even simpler argument for why FINRA’s expungement processes must be changed.  

“Frankly, I think the current system runs contrary to most peoples’ commonsense understanding of how this sort of issue should work,” Posner says. “Compare this expungement process with what happens in the court system. If someone goes through litigation, those cases don’t ever get ‘expunged.’ They get adjudicated or they get settled, and then they remain out there in the ether, for anyone to find and review on the Internet and in the PACER system. I don’t see any reason the arbitration process should work differently—especially when we remember that the original customer dispute arbitration process is not particularly fair for investors to begin with.”

Disputes Don’t Derail Brokers Anyway

Posner says she can commiserate with brokers who dread the idea of having a customer dispute mark or a regulatory action on their record. But she also cautions them to keep such things in perspective.

“Clearly, some brokers or their firms have chosen to settle a case or, perhaps, two when they honestly feel they have not behaved wrongly, simply to get the matter behind them,” Posner says. “That’s just a fact of life in this industry. But, if you have sizable settlements or multiple settlements on your record, simply put that is critical and essential information that investors and regulators should know about.”

For those brokers thinking Posner’s perspective is overly harsh, she tells them to keep in mind that there are all sorts of products and services that get rated all over the Internet.

“The idea that, just because you have a complaint means that nobody will hire you, is just not the reality anyway,” she adds. “People purchase products all the time with three or four stars, not five. From my experience as a regulator, I can tell you unequivocally that it is a huge challenge to even get investors to look at this kind of public information in the first place—to go on BrokerCheck, or to call their state regulators.”

And even when brokers experience a pattern of settlements or regulatory action, Posner says, this isn’t the end of the world either from their career perspective.  

“These days I do securities fraud class action for a living. I bring lawsuits against S&P 500 companies, and there are plenty of people who have been defendants in these cases who have gone on to have incredibly successful careers as CEOs and CFOs—people who have been involved in settlements of hundreds of millions or even billions of dollars and other regulatory actions,” Posner says.

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