States are looking for ways to protect seniors from a dramatic rise in financial elder abuse, but the financial industry is not yet comfortable with the role of reporting.
The number of financial fraud complaints from people who are 60 years and older in 2014 more than doubled from 2010, as tracked by the FTC (Federal Trade Commission). The huge leap may in part be attributed to an improvement in reporting these complaints, but regardless, the jump is enormous and must be taken seriously. The financial industry is pushing back against calls for legislation, saying that proposed new laws could result in a vast number of false reports.
The Wall Street Journal says that American retirees are exercising greater control over their finances with the decline in traditional pension plans. The article, "Officials Seek Clampdown on Elder Fraud," explains that the complexity of managing and investing savings poses a challenge, particularly as the U.S. population ages. Especially with more people projected to get dementia, this may open up the door to more exploitation.
Fraud can be anything from sweepstakes scams and bogus investment schemes to dishonest caregivers or family members stealing the senior's savings. In some instances, investment advisers or stockbrokers have been found guilty of churning accounts through unnecessary trades, resulting in high fees or losses.
Statistics show that seniors lost at least $2.9 billion to financial abuse in 2010. That was an increase of 12% in two years, according to Met Life. To help prevent this, a coalition of state securities regulators is proposing a model state law that would require financial advisers — including brokers at large investment houses and independent advisers and their supervisors — to report suspected elder financial fraud to both a state securities regulator and an adult protective-services agency.
The bill would require immediate reporting by a financial adviser who "reasonably believes that financial exploitation" of an older person "may have occurred, may have been attempted, or is being attempted." The proposed legislation affords brokers and advisers civil immunity from privacy violations for reporting suspected fraud and gives them the authority to place a hold temporarily on suspicious account disbursements.
Supporters say advisers and brokers are in a prime position to flag early warnings about exploitation. However, financial-industry trade groups are pushing back, arguing that the reporting requirement would overburden state agencies. And some financial advisers worry they could be hit with a lawsuit if they miss an abuse case since about 40% to 50% of all "red flags" of suspicious activity turn out to be false. This is according to the Securities Industry and Financial Markets Association, the main Wall Street trade group. But a "voluntary" reporting system would let securities firms look into these claims in-house before going to authorities.
Roughly half of the states require elder fraud reporting by certain financial professionals, but these laws don't always extend specifically to financial advisers. And all states have an adult protective-services agency to investigate reports of abuse, neglect, and exploitation of the elderly; however, dementia, embarrassment, or reluctance to report family members all contribute to low disclosure rates. In fact, a 2014 survey found that 44% of agency officials said financial institutions were frequently unwilling to provide a client's records, and 40% reported long delays obtaining these records.
Financial advisors say that when they suspect that one of their elderly clients is being taken advantage of, they are actually hampered by strict rules that govern the execution of trades and withdrawal processing. FINRA, Wall Street's own self-regulator, has recently drafted a set of rules that would allow firms to put a temporary hold on suspicious account disbursements, but there are no provisions for making reporting suspected fraud mandatory. There are also privacy laws that advisors say could be violated. This problem is not going away anytime soon – expect to see changes in the law and challenges in the coming year.
Reference: Wall Street Journal (December 29, 2015) "Officials Seek Clampdown on Elder Fraud"