Financial Institutions and Elder Financial Abuse — Tips to Protect Your Customers and Reputation

According to the Federal Bureau of Investigation (FBI), millions of elderly citizens are targeted annually with some form of financial fraud, and many of these attempts are successful. It has been estimated that seniors lose approximately $3 billion per year as a result of these scams, which are becoming more widespread and sophisticated.¹

Surprisingly, much of the criminal activity is initiated by a trusted friend or family member. A recent study by the University of Southern California revealed that 55% of respondents reporting any type of elder abuse categorized those acts as financial, and that family members were the most alleged perpetrators of elder financial abuse.²

Risks for Financial Institutions to Assess

With these facts in mind, financial institutions should maintain heightened sensitivity around transactions that involve elderly clients, particularly if their clients have historically managed their own finances and may be exhibiting signs of cognitive decline. Increased vigilance, in general, can assist in uncovering fraud. However, financial institutions should establish more thorough policies and procedures to increase their effectiveness in detecting such incidents.

Reducing the Risks of Elder Financial Abuse

In many cases, financial advisers develop a close working relationship with their elderly clients. These ties are derived not only from a solid knowledge of the customer’s assets, income and goals, but also from a personal relationship that gives deeper insight into those clients’ wishes and behaviors. Knowing the customer, coupled with a comprehensive training program, can act as a strong front-line tactic to prevent and expose elder financial abuse.

Financial institutions can follow guidance from the Federal Deposit Insurance Corporation (FDIC)³ or U.S. Securities and Exchange Commission (SEC) to enact a program designed to protect elder customers from abuse. Below are tips to incorporate into a program for recognizing “at-risk” clients. Financial advisers and their employers have both long-standing and new relationships with elderly clients, and these organizations and professionals should consider implementing the following practices:

1. Be on the lookout for non-family members being added to banking or investment accounts.
2. Monitor large money transfers and changes in spending patterns, as these could be a sign that some form of abuse is occurring. A senior’s spending habits are often predictable in frequency, volume and payees.
3. Be alert for large amounts of funds exiting accounts to payees who had not been previously paid in any manner.
4. Keep detailed notes in the form of dated, journal-type entries, recording any spending or personal behavior that seems unusual. These notes would be in addition to those kept on risk tolerance, goals, objectives, etc.
5. Follow up with clients via phone or email to discuss any sudden financial decisions that seem out of character.
6. In addition to making personal contact, encourage the client to engage an independent attorney to assist in their financial matters.
7. Understand the laws that apply to the financial abuse of an elder client. Follow prescribed protocols if any illegal activity is suspected.
8. Implement internal procedures to elevate circumstances which may present the need for further inquiry and analysis to the appropriate decision-makers.

What to Do When Elder Financial Abuse Is Suspected

Just as you need a system to detect elder financial abuse, you’ll also need a process in place to limit potential harm and report the activity. The first step would be to reach out to the client and establish a dollar threshold over which a particular transaction would require further scrutiny. At this point, communicating with the trusted contact may help clarify the situation. After a closer look, any subsequent payments to a suspicious payee can be stopped until the matter is investigated fully. If, after your investigation, the allegations of financial abuse appear to be true, the incident should be reported to state and/or federal authorities.

Elder financial fraud is on the rise and counts as one of the more heinous abuses of trust that senior citizens might endure. Along with the financial damage inflicted on customers, incidents of elder financial fraud can cause your bank or financial institution irreparable reputational harm. Therefore, implementing a sound method of prevention, detection, identification and reporting of this criminal behavior is paramount.

To learn more about insurance solutions for protecting your firm and your clients, talk to your Travelers representative today.

Sources
¹ https://www.fbi.gov/scams-and-safety/common-scams-and-crimes/elder-fraud
² https://hscnews.usc.edu/study-financial-abuse-of-older-adults-by-family-members-more-common-than-scams-by-strangers
³ https://www.fdic.gov/consumers/consumer/news/april2019.html