Elder Financial Abuse: Help May Be on the Way

As baby boomers approach and enter retirement, securities regulators, legislators and law enforcement agencies are sharpening their focus on the growing incidence of “Elder Financial Abuse.”

Having identified the threat several years ago, FINRA (the Financial Industry Regulatory Authority) recently took concrete action to help protect seniors. It proposed a rule requiring brokers to make “reasonable efforts” to identify a “trusted contact” for investment accounts held by senior clients. The rule would also formally empower brokers to “freeze” a senior’s account, preventing the disbursement of funds and notifying the designated contact if the broker suspects the client may be a victim of financial abuse. (Under the proposed rule, brokers could also freeze accounts of those under 65 who have a mental or physical impairment that “renders the individual unable to protect his or her own interests.”)

Over the past several years, our firm has seen an uptick in the number of cases in which senior investors are victimized either by outright fraudsters or taken advantage of by unscrupulous brokers who churn their accounts or sell them high-risk, high-commission financial products that are unsuitable for their investment objectives and risk tolerances. Most recently, we filed a FINRA arbitration on behalf of a victim of Elder Financial Abuse who had been targeted online.

Elder Financial Abuse occurs when an older adult is manipulated into transferring money or investments to another person, who then uses them for his or her personal benefit. With the aging of the baby boomers, who collectively control over 50% of total U.S. household investment assets, Elder Financial Abuse has been on the upswing. In response, many states already require certain classes of professionals to report to law enforcement suspected Elder Financial Abuse.

Sadly, family members and friends are most frequently the perpetrators of Elder Financial Abuse. These financial predators abuse their relationship with the victim, exploiting their trust.

FINRA and the SEC jointly released a report on compliance, supervision, and best practices to protect senior investors in 2008. And it is now an industry standard for brokerage firms to require their financial advisors to report any indications of suspected Elder Financial Abuse to branch management, compliance personnel and/or the legal department.

The SEC and FINRA have taken many steps to ensure that brokerage firms are on alert for indicators of Elder Financial Abuse and take protective action when the signs are present. Among the commonly accepted “red flags” for Elder Financial Abuse are: 1) a sudden reluctance to discuss financial matters; 2) sudden, atypical, or unexplained withdrawals or other changes in financial situation; and 3) unusual or first-time wire transfers.

The client on whose behalf we recently filed an arbitration claim exhibited every one of these three classic red flags. And yet her trusted brokerage firm, despite a decades-long relationship, failed to take a single step to protect her. Its negligence paved the way for her devastating losses, the bulk of which was her inheritance from her recently deceased husband. We are now prosecuting the claim on her behalf, working to recover the money she was manipulated into transferring.

If you have been a victim of Elder Financial Abuse or are concerned that someone you know may be a victim, please contact a securities attorney at The Galbraith Law Firm. Call 212.203.1249 or email kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.