It looks like state and federal officials are keen on increasing the prevention, reporting and prosecution of elder fraud.
That is good news, right?
However, new laws face resistance, especially the reporting requirement components.
So, from where would that resistance come?
The financial industry.
While at first blush this would seem odd, I can understand and appreciate its concern regarding an avalanche of false reports.
So, what are some of the recent reporting numbers?
Seniors 60 years and older were involved in 171,230 fraud complaints tracked by the Federal Trade Commission in 2014. That is more than double the number in 2010, although some of that jump could come from better reporting.
What is the financial impact of elder fraud?
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.
What is the government proposing to prevent this?
A coalition of state securities regulators is proposing a model state law requiring financial advisers (including brokers at large investment houses and independent advisers and their supervisors) to report suspected elder 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 temporary " hold" on suspicious account disbursements.
Supporters say advisers and brokers are in a prime position to flag early warnings about exploitation.
As noted earlier, financial-industry trade groups are pushing back, arguing that the reporting requirement would overburden state agencies.
In reality, however, the boots-on-the-ground financial advisers themselves rightfully worry that they could be hit with a lawsuit if they miss an abuse case.
Why?
Because some 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.
Alternatively, a "voluntary" reporting system would let securities firms look into these claims in-house before going to authorities.
At present, roughly half of the states require elder fraud reporting by certain financial professionals, but these laws do not uniformly extend specifically to financial advisers.
Nevertheless, all states do have an adult protective-services agency to investigate reports of abuse, neglect, and exploitation of the elderly ... but dementia, embarrassment, or a natural 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. Can you see where the current tension exists between state agencies seeking financial indicia of elder fraud from the reluctant gatekeepers of such evidence.
Therein lies part of the logjam.
You cannot prevent and prosecute without a report.
FINRA, the Financial Industry Regulatory Authority, Wall Street's self-regulator, recently drafted its own rule to permit firms to put temporary holds on suspicious account disbursements. This rule does not have a provision for mandatory reporting.
What is the status quo?
Right now if a financial adviser suspects an aging client may be an elder fraud victim, then many say they are hampered by strict rules governing the execution of trades and processing of withdrawals.
To make matters murkier, these advisers are also concerned with violating privacy laws if they report these concerns.
What is driving this uptick in elder fraud?
According to The Wall Street Journal, American retirees are exercising greater control over their finances with the decline in traditional pension plans.
The article, titled "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.
What does the "elder fraud" look like?
It can manifest itself as 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.
Stay tuned, as I will report on future developments as the fight against elder fraud continues.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Wall Street Journal (December 29, 2015) "Officials Seek Clampdown on Elder Fraud"
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