(The opinions expressed here are those of the author, a columnist for Reuters.)
CHICAGO, June 1 (Reuters) - Thieves follow the money, and wealth accumulates as we age. But the aging brain is not always well-suited to financial decision-making - and that creates opportunity for financial fraud and abuse targeting the elderly.
“It’s a perfect storm,” said Elizabeth Loewy, general counsel for Eversafe, a technology firm that monitors customers’ bank and investment accounts, credit cards and credit reports for potential fraud and abuse.
Loewy has been in the frontlines of the fight against elder financial fraud and abuse for a long time. She pioneered prosecution of these cases during 29 years as an assistant district attorney in the Manhattan District Attorney's Office.
“When the office got started prosecuting elder abuse, we thought most of the cases would be physical abuse or domestic violence, but we quickly saw that it usually involved some kind of fraud or larceny,” she said.
Today, there is broad recognition that seniors are vulnerable to financial fraud that can devastate household balance sheets. Almost one in five Americans over the age of 65 has been taken advantage of through inappropriate investments, unreasonably high fees for financial services, or fraud, according to a study last year by the Investor Protection Trust, a nonprofit consumer advocacy group.
A broad range of professionals who work with the elderly are stepping up their anti-abuse efforts.
The North American Securities Administrators Association approved a rule last year requiring financial advisers to report suspected financial abuses to states’ securities regulators and adult protective services departments. The U.S. Securities and Exchange Commission recently approved new Financial Industry Regulatory Authority rules requiring its broker-dealer members to add a trusted backup contact person for all accounts and to allow members to put temporary holds on fund disbursements when financial exploitation is suspected. The new rule takes effect in February 2018. And the Investor Protection Trust is training physicians and attorneys to be on the lookout for warning signs of financial vulnerability.
“There is a good deal of progress, and it’s about time” said Loewy.
Eversafe is part of a growing tech startup sector that aims to guard against financial fraud targeting seniors using software that monitors accounts for irregular activity. The category also includes True Link, which also offers a robo-advisory service focused on management of retirement income.
More than half of the U.S. population over age 85 suffers from some level of cognitive impairment, according to research by the Center for Retirement Research at Boston College (CRR). Within that group, 27 percent suffer from dementia, and another 37 percent suffer some level of mild cognitive impairment.
Not all of these seniors are vulnerable to financial abuse, said Anek Belbase, research fellow at CRR. “People with mild impairment who have spouses or family members providing support can do just fine. They can still express their needs and priorities well and can avoid problems with support from someone they can trust.”
Dementia sufferers are at greater risk - and so are spouses who start managing household finances at a late age. “If a spouse who has been managing things dies first, the surviving spouse needs to learn to do this at an older age, possibly at a time when there is some cognitive impairment, and the ability to learn new things has probably declined,” Belbase said. “That’s a person who is susceptible to making financial mistakes and becoming a victim of fraud.”
Compounding the problems, financial judgment is one of the first areas of cognitive ability to decline - and numerous studies conclude that people suffering cognitive decline tend to think they are more capable than they really are. And family members often turn out to be perpetrators of fraud, Loewy notes.
Taking Defensive Steps
How to guard against becoming a victim? Experts recommend getting an early start by making plans to protect yourself in your 50s or 60s. Procrastination is your worst enemy, since the onset and progress of cognitive decline is difficult to predict.
Start with a financial checkup that includes a review of estate-related legal documents. Have a clear succession plan - a trusted family member to manage your affairs in the event you are unable to do so.
Also consider simplifying your financial affairs and consolidating accounts wherever possible, so that a trusted financial adviser, attorney or family member can easily keep tabs on things for you if the need arises. The risk of cognitive decline also argues for shifting to less active investments and automation of retirement income drawdowns.
And - if you work with a financial adviser, make it a fiduciary. Avoid any financial adviser who is not a fiduciary - a legal definition that requires an adviser to put the best interest of a client ahead of all else. If in doubt, simply ask anyone you are considering hiring to sign the Fiduciary Oath - a simple, legally enforceable contract created by the Committee for the Fiduciary Standard.
The adviser simply promises to put the client’s interest first, exercise skill, care and diligence, to not mislead you, and to avoid conflicts of interest. You can download the oath here (bit.ly/1PtGy4w). (Editing by Matthew Lewis)