According to recent research from AARP, the rate of elder financial exploitation has more than doubled since the start of the Covid-19 Pandemic—costing victims aged 60+ an estimated $28.3 billion annually. Given this widespread prevalence and the implications financial exploitation could have on clients’ overall wellbeing, their financial goals and their ability to meet those goals, monitoring and addressing client risk is increasingly a service being provided by advisors focused on strengthening their value proposition and relationships with clients.
Given the stakes, it’s crucial that advisors stay vigilant and have a strong understanding of potential warning signs to help protect clients from becoming a victim of financial exploitation. The implications of financial exploitation can not only affect your clients but can also have a meaningful impact on your practice.
Monitor For Warning Signs
Strengthening relationships over time and getting to know your clients and their personal circumstances can be instrumental in helping identify potential risks to elder clients. It’s also prudent to familiarize yourself with the most common forms of financial fraud and abuse, including:
• Power of attorney or fiduciary abuse. When a client decides to arrange a power of attorney – a written consent that permits someone else to make decisions on their behalf – it is expected the person selected will act in the best interests of your client. Unfortunately, that’s not always the case, as power of attorney or fiduciary abuse can lead to money being mismanaged and going toward something other than a client’s expenses and care.
• Abuse by family. Financial abuse by a family member might be hard to fathom, but this type of exploitation is not uncommon and can include instances of identity theft, misappropriating family funds for personal use, forging documents or checks, unauthorized use of a family member’s credit card, insurance fraud, financial coercion and more.
• Investment fraud. Investment fraud is one of the top methods of financial exploitation and includes a wide range of tactics including Ponzi and pump-and-dump schemes, investment opportunities that seem too good to be true or offer guaranteed returns, and affinity fraud – the practice of pretending to have commonalities to gain trust with an individual or group, only to aggressively sell once they’re in the door.
• Medicare or Medicaid fraud. Medicare or Medicaid fraud can present itself in several forms and may include instances of paying for care never received, being charged multiple times for a service or medical device only received once, fraudulent claims submitted in a client’s name and being offered a product or service that Medicare/Medicaid hasn’t authorized.
• Scams targeting homeowners. Common financial exploitation schemes targeting homeowners include wire fraud, foreclosure or mortgage relief scams, reverse mortgage scams, home improvement scams and rental scams.
Facilitate An Open Dialogue
Maintaining a continuous, open dialogue with clients is essential to clear communication and ensuring they are not at risk of becoming victims of financial exploitation. While the topic of aging can be uncomfortable or even perceived as taboo, it’s a pivotal discussion to bring forward to clients, and they will likely be grateful you’ve addressed the topic and are considering their overall wellbeing. Be mindful of your language and try to empower your clients by supporting them to take hold of their finances.
The conversation might also be framed as a discussion around generational wealth transfer. According to Cerulli projections, wealth transferred through 2045 will total $84.4 trillion—$72.6 trillion in assets will be transferred to heirs, while $11.9 trillion will be donated to charities. This approach may lighten the gravity of the discussion, while also presenting an opportunity to engage with the next generation of investors to ensure pertinency and to retain business in the future.
The Ripple Effect Of Financial Exploitation
Nobody wants to see their clients impacted by financial exploitation or fraud. Beyond the obvious implications it can have on a client’s finances, it could negatively impact your practice by depleting staff resources, reducing client satisfaction and trust, and reducing potential referral activity.
On the other hand, by proactively educating and protecting clients from financial abuse and fraud, advisors can earn greater trust, continue to serve clients, uphold their fiduciary responsibilities, and even prospect with the next generation of investors.
The proliferation of financial fraud has accelerated drastically in recent years and is an issue that pertains to all of us and our families. While we all hope to age gracefully, we need to prepare for the potential risks of aging as it relates to investing and financial wellbeing.
Matt Sommer, Ph.D., CFA, CFP, is head of specialist consulting group at Janus Henderson Investors.