Unusual financial activity — a series of large ATM withdrawals, a flurry of stock trades or big-ticket purchases — could be clues that an older loved one is being financially exploited. And the first person to spot it might be Mom’s financial adviser, or a teller at Dad’s bank.
With more of the nation’s savings in the hands of people over 50 and financial abuse of older adults on the rise, companies charged with protecting clients’ assets are stepping up efforts to spot early signs of elder fraud and nip it in the bud, whether perpetrated by a distant, anonymous phone scammer or a relative or caregiver whispering in a vulnerable person’s ear.
“Our mission is investor protection,” says Jeanette Wingler, associate general counsel of the Financial Industry Regulatory Authority (FINRA), a private group authorized by the federal government to regulate brokers. “We are training staff to become more aware of the red flags that come up over and over.”
That awareness is fueling policies and programs centered on bolstering the role of banks, brokerage firms and other financial institutions as a line of defense against elder fraud.
New rules boost industry’s role
In 2016, the U.S. Consumer Financial Protection Bureau (CFPB) offered guidance to financial institutions on preventing older customers from being taken advantage of financially — the first time a federal regulator had provided such extensive suggestions for best practices. The agency called on financial institutions to:
- Train employees to recognize signs of elder financial exploitation.
- Promptly report suspected abuse to authorities and provide requested records and other cooperation.
- Offer “age-friendly services” for older clients, such as alerts for specific account activity and opportunities to name trusted third parties to view or receive information on their accounts.
- Use data analysis to review transactions and detect departures from an account holder’s typical financial behavior.
Since that CFPB advisory, industry groups, lawmakers and state regulators have taken several steps to implement some of the recommendations.
Mandatory reporting. In 2016, the North American Securities Administrators Association (NASAA), which represents state, provincial and territorial securities regulators in the United States, Canada and Mexico, developed model legislation requiring “qualified individuals” to report suspected elder financial exploitation to regulators and Adult Protection Services. The model bill also authorizes brokers and investment advisers to delay dispersing funds if they believe it will prevent a theft. It has been adopted in 32 states.
“Trusted contact” rule. In 2018, FINRA implemented Rule 4512, which requires investment firms to make a reasonable effort to add a trusted contact to clients’ accounts — a person the firm can contact if it turns up evidence of financial exploitation or is unable to reach the client. The trusted contact is a resource only and cannot trade on the investor’s account or make decisions about investments.
FINRA, with support from NASAA and the U.S. Securities and Exchange Commission (SEC), launched a campaign in September 2021 to promote the use of trusted contacts by investors.
Senior Safe Act. This federal law enacted in 2018 protects financial advisers from charges of violating clients’ privacy if they alert authorities about potential fraud. In turn, FINRA implemented Rule 2165, which allows a firm to place a temporary freeze on an account if there is reason to believe the owner is being financially exploited.
In such cases, the firm notifies the owner and their trusted contact and conducts an internal investigation of the suspicious activity. If it is indeed an attempt to steal funds, the firm may report the matter to the state’s Adult Protective Services and law enforcement.
Safer banking through technology
BankSafe, an initiative rolled out by AARP in 2019, enlists frontline staff at banks, credit unions and investment firms as foot soldiers in fighting elder abuse. The program offers free online courses custom-designed to train employees to spot and respond to red flags for fraud, such as changes of address, abrupt closures of long-standing accounts or a new person asking to be added to an existing account.