For his most elderly client, a 103-year-old woman, Michael Zmistowski is more than a financial advisor.

“Believe it or not, the main thing I work on is handling her caregivers,” Zmistowski says. “I have a caregiver manager who oversees 24-7 in-home care for my client.”

Zmistowski, a Tampa, Fla.-based financial advisor, is protecting clients from caregiver fraud, where private caregivers, medical professionals or family members steal money and information from elderly or disabled individuals.

“Caregiving has all kinds of elder abuse possibilities,” Zmistowski says. “When I set up caregivers, I put locks on clients’ cabinets and doors so caregivers can’t get to private information like securities accounts. I think we, as advisors, also have to protect clients from scams.”

Zmistowski believes advisors form a strong line of defense against fraud and exploitation in Florida, which by many measurements leads the country in financial crime. Florida has experienced an influx of retirees, immigrants and affluence—all vulnerable to fraud. And despite efforts to strengthen regulation and enforcement, advisors may present the best fraud protection for Floridians.

“I’m not sure if they are new or different scams, but there certainly seems to be more of them,” Dan Moisand says. “We have Ponzi schemes, home repair scams and deficient or non-existent products being sold.”

Moisand, a Melbourne, Fla.-based CFP licensee with Moisand Fitzgerald Tamayo, says fraud mainly targets the elderly. “As the population ages, one of the downsides is that cognitive decline becomes more pronounced,” Moisand says. “We’re going to have more vulnerability on our hands. It’s something advisors have to get their heads around quickly.”

Eleanor Blayney, consumer advocate for the national CFP Board, says seniors are also more susceptible because they come from a different generation and are more likely to trust. “When millennials reach their senior years, they might not trust anything,” she says, “but the World War II generation is more apt to trust professionals—and they have wealth as a result of saving and accumulation.”

Moisand says the newly affluent become targets for product fraud. “Some want to make money quickly, are attracted to products outside of the mainstream or distrust financial services,” he says. “There are mailers saying, ‘We don’t just offer this to anybody. This is a special deal. This is how people get rich and we can get you on the inside.’”

Matthew Guy, an analyst with the Florida Department of Financial Services, acknowledges advisor fraud also occurs. “There are people who use illegitimate designations,” Guy says. “There’s issues with registered securities brokers who are selling insurance but are not licensed as insurance agents, and insurance agents who are working with securities-related products who are not securities brokers.”

Paul Auslander, chairman of the Florida Financial Planning Association, believes the fraud outbreak isn’t specific to Florida. Yet more than 80% of Floridians over 40 have been solicited to participate in fraudulent schemes. According to the FTC, Florida is the most fraud-prone state, with over 1,000 fraud cases reported for every 100,000 residents annually—double the national average.

Florida was particularly hard hit after the housing bubble burst in 2007. By late 2008, certain areas like Boca Raton and Palm Beach were devastated by the Bernie Madoff scandal and houses already under water went on the market at firesale prices.

In retrospect, the state was unprepared for the volume of fraud. A 2009 National Consumer Law Center report ranked Florida’s deceptive and unfair trade practices statutes covering credit, insurance and utilities as weak, and said that statutes addressing fraud in real estate and post-sale activities such as debt collection were only slightly better.

Advisors have complained about the pace of prosecutions. At some levels, law enforcement agencies may lack resources to investigate financial crimes.
“Prosecutors can’t be blamed,” Auslander says. “Once a case is investigated, it’s prosecuted like any other case—getting to that point is a challenge because fewer regulators are asked to do more.”

Florida’s Office of Financial Regulation acts as a clearinghouse for most complaints about financial crime. The office has a $38.5 million budget and 362 full-time employees to monitor and review the state’s 409,348 registered financial institutions.

“Our regulators are vigilant, but the legislature defunded many agencies,” Auslander says. “It is impossible for them to keep up with the scams. Florida has an obvious funding deficit.”

Florida’s recent fiscal discipline may paradoxically harm the financial health of its residents, Zmistowski says. “Because this is a balanced budget state, prosecutors and regulators are behind the eight ball,” Zmistowski explains. “Instead of having five attorneys to prosecute, they have two.”

Because fraud investigations require extensive review and number crunching, investors and other victims may miss opportunities to recoup their losses.

“Restitution can be difficult in fraud cases because often the scammer has spent the money, either on their personal lifestyle or to maintain the appearance of a legitimate business, before the investor realizes they’re a victim of fraud and files a complaint with our agency,” says Katie Norris, spokesperson for the Florida OFR.

Moisand says the lack of restitution adds to the impression that enforcement is lagging. “It seems like there is no enforcement because when the fraud is discovered, the money is gone,” Moisand says. “It feels like nothing was done, but in reality they’ve found and stopped the fraud.”

There are signs of improvement in the Sunshine State. In 2009, Florida passed the Investor Protection Act, expanding the state justice department’s investigative and law enforcement powers with respect to securities laws.

In 2010, the Florida FPA and state regulators created “Safeguard Our Seniors,” an act targeting annuity fraud. “It turned taking advantage of a retired person with investor fraud into a class 3 felony from basically being a slap on the wrist,” Auslander says.

In 2012, the act was strengthened with stricter suitability standards for seniors, which were expanded to cover all consumers in 2013. On the local level, police departments have organized fraud task forces to address different types of financial crimes. In some cases, new levels of court jurisdiction have been formed to hear fraud cases.

The measures are paying dividends: The OFR reports that it has cut the time it takes to process complaints in half. “With regard to annuities, we started to address fraud in 2008,” Guy says. “Since that time, we have seen a decline in complaints, and we believe it is due to stricter laws, suitability reforms, disclosures and negative media attention that was brought to bear. Consumers are better educated.”

Florida’s attorney general reports that financial recoveries in cases of fraud increased by more than 500% during 2013. Florida’s efforts benefit from a national movement to share information and resources across financial regulatory agencies.

“For the longest time, there was no cross-checking system between securities and insurance regulators,” Auslander says. “Fraud was being perpetrated by people who had already had their license pulled by one agency.”

From a regulator’s perspective, Guy says it is now customary to report all administrative actions to a national database available in other states. Yet despite these efforts, fraud remains rampant, so advisors like Auslander shoulder the responsibility to protect their clients.

“We have to educate our clients and make sure they’re aware,” Auslander says. “Look at Bernie Madoff. People suspected something was fishy because he didn’t use a third-party custodian. Someone should have spoken up earlier. There’s a culture of silence, a culture of not ratting out your peers in the industry.

You’re not going to see an agency representative or a broker-dealer reporting to a regulator most of the time. You’re going to see an independent make the report, because reputation is everything. If they have a bad reputation, they will have problems getting clients.”

Advisors also need to be aware that failing to protect their clients may negatively impact their own reputation, Blayney says. “Financial abuse, exploitation and fraud cost seniors huge amounts each year,” she says. “Much of that can be linked to someone close to them like a caretaker or a family member.
Remember that planners are also in a trusted relationship with clients. We’re worried about the professionalism and integrity of advisors.”

Zmistowski says that advisors have to be vigilant. “Oftentimes, the planner is the first person to recognize when there’s fraud going on,” Zmistowski says. “The good guys are responsible for reporting the bad actors. Ignoring abuses by not reporting reminds me of being complicit in crimes. Between 2001 and 2011, Florida police made 121 arrests for ‘failing to report child abuse.’ That should hold for financial abuse, too.”

Zmistowski acknowledges that in most cases, regulators want complaints reported by victims, not their financial representatives, but often clients are reluctant to go to the authorities.

“Advisors describe cases where a client recounts a situation that the advisor encouraged reporting, but the client was reluctant,” Blayney says. “I think there’s embarrassment when someone realizes that they are the victim of a fraud, but we’re becoming complicit by not pushing for reporting.”

Auslander says planners add value to their services by protecting their clients, helping them stay relevant in the era of robo-advisors. “We’re going to see something’s strange when fraud is going on,” Auslander says. “For years, bank tellers have been educated to watch for suspicious people accompanying elderly clients or helping them fill out deposit or withdrawal slips. Advisors haven’t typically looked at this stuff, but that’s changing.”