Fraud by a Fiduciary Can Be Especially Costly

The vast majority of financial professionals do not steal from their clients and work hard in those clients’ best interests. In fact, they are a significant line of defense against financial exploitation.

The federal Bank Secrecy Act obligates financial institutions to file a suspicious activity report (SAR) with the Treasury Department’s Financial Crimes Enforcement Network if they detect questionable activity in a customer’s account. The CFPB also advises institutions to report cases to local, state or federal authorities.

The Financial Industry Regulatory Authority (FINRA), an industry group authorized by Congress to protect the interests of investors, also has regulations that can help detect EFE. For example, FINRA rules require member institutions to seek the name of a “trusted contact” for anyone opening a new account. 

That way, if the institution spots suspicious activity involving the account or if a financial adviser has concerns about the account holder’s cognitive skills, “I have permission to go contact” the designated person, Kolluri says.

What family caregivers can do

Experts recommend that family members and friends take these steps to minimize the risk that a vulnerable loved one will be taken advantage of by professionals to whom they’ve entrusted their finances.

Be on the lookout for red flags

Ask questions if a financial adviser is frequently moving a loved one’s money around or recommending major changes in their assets or estate, says Adam P. Scherer, president of Greenbeat Financial, a financial planning firm in West Hartford, Connecticut.

A lack of availability and accessibility — not returning phone calls, for example — is another big warning sign, Scherer says, indicating at the very least negligence on the financial professional’s part.

Alert banks to life changes

Notify a loved one’s bank or credit union of changes in an aging loved one’s lifestyle or money management, such as a new caregiver, conservator or professional fiduciary, or about a move into a long-term care facility, Greenwood advises.

Ask the institution, in writing, “to keep a special eye on my mother’s account or my father’s account, and if you see a change in any kind of pattern of behavior, I want you to immediately flag that and do your duty and report it to Adult Protective Services,” he says.

Stay in touch with service providers

Whether it’s a hired caregiver, a financial adviser or a professional fiduciary, let them know the family is playing an active role in the client’s life, Greenwood says. Ask questions such as, “What are you going to be doing for my parents?” and “How often are you going to be billing?”  

If it’s practical, pop into their office “unannounced, just to make sure that things are going smoothly,” he recommends. If you don’t live in the area, ask a trusted friend to do so.

Get a second opinion

This option may be costly, but if you feel in your gut like there’s something’s wrong with how a loved one’s fiduciary is handling their finances, “ask your own lawyer or accountant, ‘Hey, do these numbers make sense?’ ” says Patrick M. Simasko, an elder law attorney in Mount Clemens, Michigan.

Report it

If you believe your loved one has been victimized, place a call or write a letter to Adult Protective Services in your area and notify local law enforcement.

The key to stopping EFE is raising awareness, Greenwood says: “What I’ve learned over the years is that we have to keep getting this message out in all forms.”

Editor's note: This article, originally published Nov. 5, 2021, has been updated with more recent data from Comparitech's study of elder financial abuse.

Tamara E. Holmes is a Washington, D.C.–based writer and editor. She has written extensively about money, entrepreneurship and careers for more than two decades. Her work has appeared in such publications as USA Today, Working Mother and Essence.