Almost half of certified financial planner (CPA) professionals have seen evidence of increased elder fraud and financial abuse during the last five years, as shown by a new survey from the American Institute of CPAs (AICPA).
The findings come from the AICPA Personal Financial Planning Trends Survey, showing fully 47% of CPAs have observed more financial abuse or attempted abuse lately. One semi-positive trend in the report and perhaps the most relevant finding for retirement plan advisers: fraud that targets older Americans’ wallets tends to have muted financial impact—with only 5% of CPAs observing instances of abuse with a “substantial financial impact.”
But the emotional impact and the impact on future quality of life and decisionmaking remains great—not to mention that 5% of the older U.S. population is still a very large number of people and assets. Against this backdrop, nearly four in 10 (37) CPAs have observed “substantial emotional impact” from elder financial fraud, the report suggests, tied largely to the surprising sources of fraud in many cases.
Beyond harming an individual’s state of mind, it’s been widely evidenced in the retirement space that emotion-driven financial decisions are generally not the best decisions. This holds whether it’s the adviser relying on emotion to set portfolio strategy or the investing client making his or her own decisions.
According to Jean-Luc Bourdon, member of the AICPA’s PFP Executive Committee, this all makes for a good opportunity for CPAs and other qualified financial professionals to “serve as the quarterback … calling the plays and making sure that everyone involved is playing the role that they are supposed to.” He puts a particular emphasis on the need for this type of coolheaded leadership from trusted advisers and financial planners in client circumstances involving dementia or other challenging illnesses.
Next: playing quarterback
AICPA finds one major contributing factor to the sharp negative emotional impact of financial fraud or abuse is how often the situation involves family members. The most common types of elder financial abuse or fraud seen by CPA financial planners over the past five years were phone or Internet scams (79%), followed closely by “inability to say ‘no’ to relatives,” cited by 72% of CPAs. Equally troubling, offering support for non-disabled adult children served as the third-most prominent vehicle for fraud (57%).
“For elderly individuals, being a victim of financial fraud or abuse can be emotionally devastating,” adds Ted Sarenski, a member of the AICPA’s PFP Conference Planning Committee. “The impact is compounded when the perpetrator is a member of their own family or a friend.”
He says one of the unique challenges for financial planners and advisers working with elderly clients is balancing their desire to help their family members financially with the need to ensure they won’t prematurely spend down their own resources or direct money where it’s likely to be abused.
Disturbing in some respects, the likelihood that elder fraud is committed by a family member makes sense: The AICPA survey found that family members, especially spouses and adult children, are frequently involved in financial planning meetings. Others involved in the process as part of an elder client’s “support team” are attorneys (39% of the time), trustees (23%) and outside investment managers (19%). Sarenski says the potential complexity of coordinating these parties underscores the need for a qualified financial planner to take the helm.
NEXT: Avenues for fraud and abuse
AICPA suggests the more emotional decisions elder Americans face are also the most likely avenues for fraud or abuse to occur—and the potential abuses are as diverse as the financial outlooks of the U.S. over-65 U.S. population. Another challenge is that abuse does not always fall squarely in the realm of the illegal—an adviser’s clients may be pushed by an adult child to sell a property in a way that is legal but not in the parent’s best interest, for example.
Indeed, one of the most emotional aspects of elder care planning is “decisions about housing, including helping elderly clients make the decision to relocate into a continuing care facility,” the survey finds. AICPA researchers observe only 15% of CPAs’ elderly clients sought independent due diligence related to housing options or nursing home in the last year. At the same time, 44% percent of respondents reported that they’re providing this service for their elderly clients more frequently than they were five years ago.
The report concludes that providing elder planning services “requires an approach that combines sophisticated technical expertise with the emotional intelligence to understand a client’s needs.” Practical strategies include revisiting older clients’ financial plans every six months to make sure there are enough assets to match the plan, or if any unanticipated adjustments have been made or are needed. Perhaps most important: a client’s loved ones, financial and/or legal professionals, and other members of their support team should know and be formally authorized to communicate with one another.
“This helps provide checks and balances,” the report finds, “and, since elder financial abuse is often committed by a relative, checks and balances are important.” The adviser could even encourage an older client to use him “as the bad buy … Get them in the habit of saying ‘I run everything by my CPA financial planner, so I'll have to get back to you.”
AICPA presents additional findings from the PFP Trends Survey here.