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.”
 

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