When older investors fall prey to financial abuse, their investment advisor might be the first person to realize their client is being scammed, but experts stress that firms must be vigilant in looking for trouble spots, including regular communication and in-house training programs.
"Advisors that know their clients can smell when something's up," says Daniel Bernstein, chief regulatory counsel at the compliance consultancy MarketCounsel.
Experts acknowledge that part of the challenge of battling elder financial abuse is that so many cases go unreported or undetected. For some time, industry and government officials have been citing an estimate that puts the annual losses from elder financial abuse at $2.9 billion. However, many observers believe that figure to be dramatically understated, and, indeed, a study published in January from the financial services firm True Link put the losses at nearly $36.5 billion a year.
"I think that it's an iceberg phenomenon," says Eleanor Blayney, the CFP Board's consumer advocate. "What we're seeing is only a small piece of what may exist."
FOUL PLAY OR FALSE ALARM?
To the extent that advisors are attuned to their clients' financial activities and have worked with them to develop goals and a plan, they are better able to identify when something might be awry. A sudden series of withdrawals or a sharp uptick in spending from a generally frugal customer, for instance, might set off an advisor's suspicions.
"We know spending habits -- you recognize spending patterns and habits. I think we have a responsibility to be aware if we suspect anything or notice anything out of the ordinary," says Katie Coleman, a financial advisor with Siena Wealth Advisory Group.
In many cases, there is no foul play involved, advisors acknowledge. Some clients, they say, simply make odd or perhaps unwise decisions with their money.
And it can become a delicate situation when a client approaches an advisor with a request to move money or liquidate a long-held position in a move that runs contrary to the agreed-upon financial plan. At that point, it is incumbent on the advisor to engage with their client and attempt to draw out their rationale for the proposed transaction, according to Thomas West, an elder abuse expert and senior associate at Signature Estate & Investment Advisors.
"If my client has a very difficult time explaining the reason for the change in the course of action, I usually can start to get worried pretty quickly," West says. "The inability to explain why a particular choice was made is I think the most predictable indicator."
'STEP UP COMMUNICATION'
Of course, once an elderly investor has been victimized, the money is rarely recovered, making prevention and early detection that much more important.
Paul Saganey, president of Integrated Financial Partners, emphasizes the importance of keeping open an ongoing conversation with elderly clients, and recommends that advisors make a regular practice of reaching out with a phone call, just to check in.
"With every client, but especially when it comes to seniors, we're really trying to step up our communication with those clients," he says.
Other practitioners and observers highlight the relative lack of training and understanding about elder issues among advisors and RIA support staff.
"As an industry as a whole we need to do a better job of education," Coleman says.
MarketCounsel's Bernstein suggests that many firms suffer from an organizational challenge that might hinder their ability to spot instances of elder abuse, which could argue for more collaboration between the most senior levels of the practice and the personnel who are in regular contact with clients.
"For better or worse, a lot of the institutional knowledge and ability, frankly, is at the level of the principals, but they're not always the one dealing with the clients on a day-to-day basis," Bernstein says. "And a lot of that knowledge and expertise doesn't trickle down to staff ... When they're not training everyone else on what to look for, that's the weakest link."
Kenneth Corbin is a Financial Planning contributing writer in Washington and Boston.
This story is part of a 30-day series on better serving seniors.