In the United States securities regulators have implemented rules designed to help the investment industry play a critical role in combatting financial exploitation against older adults. The financial exploitation could be financial abuse involving a relationship of trust that has been violated by family members, friends or other persons who are known; or financial fraud against older adults involving scams perpetrated by strangers.
The measures allow investment firms to place temporary holds on disbursements of funds when they suspect financial exploitation of the client and allow the firms to contact a trusted contact person when suspecting financial exploitation. These measures are found in the North American Securities Administrators Association’s ( or “NASAA”) Model Act, in legislation passed by 13 states based on the Model Act, as well as in rules of the Financial Industry Regulatory Authority (FINRA).
Elder financial abuse is increasing being recognized as major and growing problem. There are three main reasons:
- A growing understanding of the health-related effects of aging with a decline in financial capabilities being one of the early clinical signs of cognitive decline.
- Older adults are increasing responsible for managing their own retirement savings, and having to make relatively complex financial decisions at a time in their lives (ironically) when their ability to do so may be impaired or lessening. The funds are accessible to scammers and others unlike defined benefit plans where only the monthly payments could be misappropriated.
- Demographic changes and the large transfer of wealth that is set to occur provide urgency to this problem.
It should also not be forgotten that financial exploitation not only has negative consequences on financial well-being but often has significant negative effects on individuals’ physical and mental health.
An interesting White Paper that looks at the scope of the problem, what information is known and what we don’t know along with possible reforms and approaches is Elder Financial Exploitation: Why it is a concern, what regulators are doing about it, and looking ahead, by Stephen Deane, US Securities and Exchange Commission, Office of the Investor Advocate.
I would like to highlight three areas from the White Paper.
- Aging, Diseases, and Cognitive Decline
Cognitive decline can occur through the normal aging process – even in the absence of disease, our fluid intelligence can decline. Certain diseases (the most well- known being Alzheimer disease) can make older adults more susceptible to financial exploitation. Deane points out that some older adults maintain financial skills and judgment at the initial stage of cognitive decline and even through a moderate stage of dementia, retaining financial capacity despite cognitive decline. However, with others, financial impairment is often one of the earliest clinical signs of cognitive decline.
Coordination between health services and financial services professionals could lead to benefits – helping to prevent elder financial exploitation or, through observation of diminished financial capacity, serving as a warning sign to family and doctors of cognitive decline (whether Alzheimer disease or other forms of dementia). Deane points out the significant challenges given an individual’s privacy and autonomy rights and explores some of the challenges and dilemmas.
- Need for Data and Research
There are large gaps in data and empirical research. The U.S. has Adult Protective Services (“APS”) at the state level, which may provide different types of services, to different populations. Eligibility for those services, response times and education and training of its workers may vary both with and amongst states. Nonetheless, a federal initiative in the U.S. is underway to build a national data system of APS data called the National Adult Maltreatment Reporting System (NAMRS).
Why is data important? Data helps inform policies about elder abuse and justify the need for adequate funding and resources. The Elder Justice Roadmap, a report reflecting 750 stakeholders and experts, states that “Comprehensive data collection is critical to inform efforts to detect, respond to, and prevent elder abuse, to shape policy, and to allocate resources where they’re most needed.”
Although gaps in data will remain given low reporting rates, the U.S. is far further ahead in its data gathering efforts than we are in Canada. Regardless of the need for data, we know this is a serious problem that must be addressed.
- How Technology Hurts and Helps
The use of technology poses both challenges and opportunities to combat elder financial abuse. Technologies and new online platforms provide opportunities for bad actors to engage in financial exploitation. The use of technology rather than face to face interaction also lessons the ability of gatekeepers in the system such as investment firms or banks, to spot red flags and take steps to protect their clients.
However, technology also affords us the ability to devise new tools to detect, prevent and even predict the risks of elder financial abuse. At present, technology exists to detect suspicious patterns or transactions. For example, you may get a call that your credit card has been temporarily disabled when you are in a foreign country. Investment firms can also detect unusual trading patterns in an investment account or unusual transactions in a banking account. Such tools, along with voice recognition and face recognition, could be used to stop fraudsters and abusers from taking money of vulnerable clients. In addition, Artificial Intelligence (“AI”) and predictive analytics could be used in the future to find patterns and make predictions that would alert us when someone is at high risk of being a victim of elder financial abuse.
Another reform proposal (from the Federal Reserve Bank of Philadelphia) would enable one financial institution, when it suspects financial abuse, to warn the customer’s other financial institutions. While this kind of sharing is permitted now in matters of suspected money laundering or suspicion of terrorist financing, its use could be expanded to deal with the issue of suspected financial exploitation.
In Canada, regulators are considering adopting measures similar to those implemented in the United States. With the advantage of learning from the experience in other jurisdictions, Canada has an opportunity to take positive action to address this growing problem.
 June 2018, Elder Financial Exploitation: Why it is a concern, what regulators are doing about it, and looking ahead, by Stephen Deane, US Securities and Exchange Commission, Office of the Investor Advocate, available online: https://www.sec.gov/files/elder-financial-exploitation.pdf.