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Industry Must Get Serious About Preventing Elder Financial Abuse

In my role as director of the Cary M. Maguire Center for Ethics in Financial Services, I have the opportunity to talk with practitioners all over the country. When I ask them, “What keeps you up at night?” the most common response is how to deal with the ethical issues posed by the diminished capacity of certain older clients.  

A recent survey confirms my anecdotal evidence. According to the survey, only half of advisors believe they are prepared to handle clients who are suffering from a cognitive decline. Even if advisors do feel prepared, they often find themselves torn between their obligations to protect client confidentiality and to act in the best interest of their clients.

Financial services professionals experience this conflict more acutely than other professionals such as attorneys or physicians. This is because frequent interactions provide opportunities to notice more readily when something is amiss – for example, when a previously conservative client is requesting large disbursements, or when a client known to you for her meticulous record keeping is past due on her bills or cannot give an account of her expenditures. These dilemmas often cause significant amounts of emotional distress. The most successful advisors are those who are motivated by a desire to serve their clients. Yet, these “action-oriented” helpers find themselves in a position where their hands are tied. If there is no second person on the account, there is little the advisor can do beside persuade or stall.

It seems that regulators are listening to the concerns of the advisor community and other advocates on this issue. Representatives of the Security and Exchange Commission’s Office of the Investor Advocate cited preventing the financial abuse of elders as one of the six priorities of 2015. The North American Securities Administrators Association (NASAA) formed a Committee on Senior Issues and Diminished Capacity to explore the problems of elder abuse. Finally, the Department of Justice, working in collaboration with the Department of Health and Human Services, announced the release of the Elder Justice Roadmap, a comprehensive plan to combat different aspects of elder abuse, including financial abuse.

Increased regulatory attention is a welcome development, not only because it assists conflicted advisors, but also because of the devastation that this form of abuse can impose on elderly victims and their families. According to one survey, one in every five Americans age 65 or older has been abused financially. People 60 years and older made up 26 percent of all fraud complaints tracked by the Federal Trade Commission in 2012, the highest of any age group. In 2008, the level was just 10 percent, the lowest of any adult age group. A 2011 study by the MetLife Mature Market Institute and the National Committee for the Prevention of Elder Abuse revealed that the financial losses suffered by victims of elder financial abuse were estimated to be at least $2.9 billion, a 12 percent increase from 2008.

These are startling numbers, and many experts believe that the problem is getting worse. Many elderly victims who suffered financial losses during the recent economic downturn may be more willing “to roll the dice” or more ready to believe in the false promises made by the scammers. Older adults present a ripe target for perpetrators. This is not only because of their wealth, but also because, as research shows, older adults may be less able to pick up on visual cues that someone is untrustworthy. Fraudsters do not need to be face-to-face with seniors in order to harm them. The Internet offers a whole new medium to launch fraudulent schemes. Financial fraud can take many forms, but perhaps the most pernicious schemes are those that leverage an elderly person’s desire for companionship, romance and engagement with the world around them. In many schemes, the elderly person is not only robbed of assets, but also of dignity and self-respect.

As with other areas of professional ethics, proper preparation can save the day and a great deal of angst. The professional virtue of diligence, found in almost every code of ethics that governs the behavior of those in financial services professions, demands that professionals act prudently and preemptively to avoid ethical dilemmas, particularly those that harm our clients. The financial services industry and the organizations that support it have a tremendous opportunity to take the lead on this important issue. It is up to us to take on the challenge.


Julie Anne Ragatz is director of the Cary M. Maguire Center for Ethics in Financial Services and assistant professor of ethics at The American College. [email protected].

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