Protecting Your Clients From Financial Abuse

Some of the most prevalent scams today are related to Medicare. As you know, those of us who are 65 or older have received new Medicare cards, and the new Medicare cards have a more distinct number than just our Social Security number. Well, there may be people calling your clients and saying, “Did you receive your new Medicare card? I need a little bit of financial information to make sure that we have all your information correct in the database.” They then ask specific financial questions.

Another one that I’ve seen recently is a prerecorded call that says, “The IRS is investigating you. Please contact us immediately to avoid prosecution.” Those are the things that happen from strangers.

Interestingly enough, more than 30% of the exploitation that occurs comes from family members, friends, or neighbors. A power of attorney can make financial decisions for you. When you give them that power, they can write checks, withdraw funds, change investments, and do any financial transactions that you have.

They can also use a power of attorney for their purposes, withdraw money from your accounts, and utilize it in any way they want. Some family members have joint bank accounts with their elder clients, and again, with a joint bank account, they can do anything that the other person can do within that account, and they abuse their joint account. Sometimes, they’ll steal checks, or sometimes, they’ll utilize an ATM to get funds from an elder.

One of the regrettable things that happen is that if there’s a family member who is a caregiver, they may threaten to abandon the elder if the elder doesn’t provide them with some funds or do something that they want them to do, they may refuse care. Unfortunately, in some cases, people have in-home providers who provide care that find ways to take advantage of the people for whom they’re providing care.

Why are seniors financially abused?

With elders, more than 40% of our wealth in this country is in the hands of people over the age of 65, so naturally, they are a target for elder abuse.

We also have an ongoing and increasing issue with mental capacity. The number of people age 85 and older is growing faster than any other group in the United States. It is the fastest-growing demographic group in the country. Unfortunately, according to the Alzheimer’s Association, 46% of those people over age 85 will develop dementia or Alzheimer’s. It is expected that over 10 million baby boomers will develop Alzheimer’s. People with diminished mental capacity are specific targets for elder abuse.

I had a situation with a client who had been in a severe automobile accident and had limited mental capacity as a result of that accident. She couldn’t drive, she had limited access to move around, and there was not much she could do. Unfortunately, she met a boyfriend who decided he was going to take her to buy a car, and he bought a car in her name, she signed for the car, and he drove it. We had the car returned and referred him to legal people, but this happens.

Politeness – your parents, like my parents – if they were members of the Greatest Generation, they’re very polite people. They don’t do things that people don’t like. They’re very careful about doing the right thing. Sometimes, being polite puts them in a situation where they can’t say no to what’s happening to them.

The unwillingness to report is very prevalent. Only 1 out of 40 people who are subject to elder abuse end up reporting it, so there are many situations where people have been handled with elder abuse but do not report it to the authorities because they’re ashamed to say that it happened.

The last thing is “elder isolation.” One in four adults in this country lives alone, and that’s particularly difficult for older people. If they live alone, they’re much more susceptible to a number of these situations, and unfortunately, they’re taken advantage of very often.

What is FINRA Rule 2165?

Two new regulations help us as financial advisors to deal with these situations. The first of these is “FINRA Rule 2165” established by FINRA, which oversees financial advisors associated with a broker-dealer. If you are a registered representative, you are with a broker-dealer, and you are subject to FINRA Rule 2165.

According to FINRA Rule 2165, a financial advisor is protected if you choose not to distribute funds to a client if you believe there is financial exploitation involved. You can delay sending them the check for 15 days, and then extend that for another ten days while you’re reviewing the situation to see if there was some exploitation involved.

The one condition is that your firm or a firm that’s hired by your firm has to provide you with training as to how to handle and recognize financial exploitation. An essential part of the rule is that you can’t get this protection unless you are trained.

Another aspect of FINRA Rule 2165 is something called the “trusted contact” who is a person that you can identify and contact with information if you feel the client is losing their mental capacity. Part of FINRA’s standard application includes naming this trusted contact. You don’t have to get the information from them, and they don’t have to give you the names, but you need to ask for them.

What is the Senior Safe Act of 2017?

Congress approved the Senior Safe Act under the Special Committee on Aging. Any financial advisor who works with any bank, financial institution, accounting firm or anyone who provides financial work or financial advice with clients is covered under the Senior Safe Act.

The Senior Safe Act protects the person who is covered under the act when reporting someone that they feel is being taken advantage of by financial exploitation. In many cases in the past, when you refer someone to services requesting a review of a person’s situation to see if they’ve been exploited, the family sometimes turned around and sued the financial advisor for doing so. Under this act, you are protected from lawsuits if you are covered under the Act.

Again, one proviso: You need to be trained to understand and identify exploitation so that you can handle it yourself.

How do we protect our clients from financial exploitation?

The first thing is to identify unusual activity, and that includes new friends your client may have found and new people who are spending time with your client. Are those new friends starting to appear on your client’s bank accounts? Are they establishing joint accounts with that person?

Secondly, have your clients made unusually large withdrawals from their accounts recently that they haven’t done before? I have a client who is a retired physician that suddenly started to make significant withdrawals from his retirement account over a period of time, and we had to do some research to determine what happened. We discovered that he was being taken advantage of by a family member as his mental capacity was beginning to diminish. He also thought he had won the lottery. It was a tough situation.

Change in durable power – now, I already mentioned to you that the durable power of attorney is an important document that gives the person the authority to act on behalf of someone in all their financial activities. That is very powerful, and if someone has changed whom he or she names as the durable power, it can have a significant impact on his or her financial situation. So has your client made any changes in that durable power of attorney?

Another situation is if there’s been increased interest from a family member in your client. I had a case where a husband and wife, who lived here in Massachusetts, hadn’t heard from their daughter, who lived in Florida, in 20 years. Suddenly, the wife started to show diminished capacity and the early stages of Alzheimer’s. After 20 years, the daughter showed up to “help” her mom, and it was clear that she was there to find out how she could take advantage of her financially.

These are a few of the situations that occur, but there are many others. One of the things I’ve learned about recently is a service called EverSafe. It allows you to keep track of all your financial accounts and any unusual activity that occurs. For financial advisors, we can obtain an EverSafe account for one year for free, and we can refer our clients to it for a 20% discount.  It analyzes all your bank, investment, retirement, and credit card accounts every day and identifies any unusual transactions. Any suspicious activity generates an alert by email, text, or however you want it to be received, and it keeps track of all your activity and all your accounts.

Help your clients keep their legal documents complete and up to date to help protect them from elder fraud

Does your client have an up-to-date will? Do they have a will that’s approved in the state in which they live? Many of our clients have moved from one state to another, and they may not have the appropriate will for the new state.

It’s certainly valuable to know if your will is current and who the executor is. Again, the executor is the person that will carry out the conditions of the will for your client. Does your client know who that person is and is that person still alive? Unfortunately, there are occasional situations where someone was named as the executor and they are no longer alive. Your client needs to review who that person is, and their family needs to know who these people are who have the authority to carry out the conditions in your will. If they make changes to the will, that’s certainly an alarm to which you should pay attention. Why are they making changes, and who are they changing in their wills as they get older?

Secondly, we talked about the durable power of attorney. Again, this is a critical person. I don’t suggest that you name two people to have that durable power. Let’s say you are a widow and you have three children. I’d suggest that you not have the durable power with two children because eventually, they end up arguing about what should happen with your finances. You should have one of them hold the durable power of attorney and another be the successor so that if the first person is not available, the second person is the successor. It would be better if you named that child or family member that you trust totally to have that power.

Having a health care proxy is critically important for each of us because if we are ever in a situation where we’re not able to make health care decisions for ourselves, we need to identify someone who has that healthcare proxy. We need someone to step in and acknowledge what needs to be done if we need health care.

I had a situation with a good friend of mine who unfortunately had a severe stroke.  I was standing with his wife in the waiting room while he was in intensive care. The neurosurgeon came up to her and said to her very clearly, “You have to make a decision. We have to decide in five minutes whether we’re going to operate on your husband or not. If we don’t operate, he will surely die, but if we do operate, he may end up being a vegetable. So, what option do you choose? What do you want to do?”

As his healthcare proxy, his wife had to make a tough decision. If you are in the position of being a health care proxy, you have an important job, and through a living will, you need to understand what your client wants to happen if they are in a serious physical situation.

One of the things that I recommend to people is that they utilize a form called Five Wishes, which they can purchase for a very insignificant amount. It gives you the opportunity to list in great detail how you want to be taken care of if you’re extremely ill. It’s provided in 42 states as a legal document for a health care proxy if it’s signed with a witness. I suggest that each of you get the Five Wishes and review it and sign it for yourself, so you understand your situation. We certainly need to know our situation first before we can recommend that anyone else make end-of-life plans.

The third is the HIPAA form. I don’t know if you’ve ever been in a situation where you’ve had a parent or family member in the hospital, and you wanted to get information about their health situation. If you go to the desk and say, “I’d like to know how my mother is doing.” The first thing they’re going to ask you is, “Are you on the HIPAA form? Can we release healthcare information to you?” It’s critical that you find out if you have a HIPAA form and you’ve signed it, especially for your parents and your family members.

The last crucial legal document covers what we call insurance or annuity contract beneficiaries. If you have any life insurance or disability insurance, or if you have an annuity, you have a named beneficiary or multiple beneficiaries. These beneficiaries can be changed at any time, but you need to have available the document that defines who the beneficiary is because when you pass away, that information needs to go back to the insurance company or the annuity company. You need to name primary beneficiaries and contingent beneficiaries because if the primary beneficiary is not alive, the contingent beneficiary will be there.

Last year, I watched a 60 Minutes presentation on television and discovered that there are many insurance companies who know that a person has died, but have not paid out the death proceeds to family members because those family members were not aware that they were the beneficiary and did not request those funds. There are millions of dollars being held by insurance companies of which beneficiaries don’t know that they’re the beneficiaries, so make sure that your family members understand that situation.

It’s crucial that your clients have all these legal documents in place and in good hands.

What is a “Life Folio?”

The “Life Folio” organizes your clients’ affairs. It’s one document – it could be a three-ring binder, it could be online, it could be in any number of programs, but the key is that it’s all in one place. The Life Folio should provide all required information in one place.

What kind of information needs to be in this document or three-ring binder? What’s the contact information for your client’s advisors? How do you get in touch with their CPA, their life insurance agent, their minister, their other people who are close to them? Where are their legal documents? Where are their wills? Where are their trusts? Where is their health care proxy? They don’t necessarily have to be in the binder, but you need to identify where those documents are for your clients.

Thirdly, investment account detail: What are their investment accounts? How are they held? Are they in individual names or joint names? What are the account numbers and do those accounts have beneficiaries? Specifically, for IRAs and pensions, beneficiaries are named as well.

Then there’s insurance. What type of insurance does your client have – life insurance, health insurance, disability insurance? What’s the information on those various insurance policies?

Lastly – maybe increasingly important and perhaps most important – is a listing of usernames and passwords. When have you come in contact with a person who cannot identify their username and password for an account? A friend of my wife mentioned that the husband of a friend of hers was a doctor, and he had handled all their financial affairs. She had nothing to do with their financial matters. He suddenly passed away about three months ago, and she has no idea where his investments are, what his usernames are, and what his passwords are, and she’s at a loss to discover what that information is. She’s contacted her children and asked them to help. Just imagine it when she calls Fidelity and says, “I’m the wife of so-and-so, and I don’t have access to my husband’s account and don’t know his password, but can you help me?” As you can see, they’re not going to help you. They’re not going to be able to provide that information to you.

There is a website where you can download a free 36-page questionnaire that I created that covers all these areas and many others. Everything your client needs to know about their life is in the Life Folio System.

The why and how of family meetings 

One of the most powerful things I ever did was to learn to use family meetings with my clients. It was particularly crucial for a client of mine who I had been working with for maybe 20 years. He was a physician, highly regarded in the community, and I managed his investments for many years. Suddenly, I started to get phone calls from him asking if he could speak to his accountant, and he would call me again and again, asking to talk to his accountant. It was clear that he was beginning to lose his mental capacity.

As a result, the only thing that I thought we could do that would be helpful was to get him together with his family. I didn’t have the authority to call his family and tell them that I thought he was slipping because I didn’t a client advocate form or a trusted advocate form, so I suggested that we have a family meeting.  We met together with his wife, his children, and his children from a previous marriage, and discussed their financial situation.

It became increasingly evident in the meeting that he was slipping mentally. When asked how he was going to handle his financial situation as part of the meeting with all these people, he responded, “Well, really, all I need to take care of is to get my cat to Florida.” It was clear at that point that he was no longer able to handle his financial affairs.

In many cases, this family meeting is the first time that children have gotten a current look at the situation of their parents and where they stand.  Especially if they’re starting to have difficulties managing their finances, it’s essential for the children to get together with their parents to talk about these situations.

What are the things that need to be part of this family meeting? First, I think one of the most important steps is to identify the adult child that I call the “alpha child.” That’s the child that’s the family champion, that all the other children look to for advice, that Mom and Dad can trust, that Mom and Dad can discuss things with, that are very willing to help and have the respect of everyone else in the family. The alpha child is the person who can help you bring together all their siblings with their mother and father to have a meeting of the whole family.

Secondly, you need to identify a facilitator, a person who’s not part of the family who can direct what happens during that meeting. That person needs to be objective and not take sides with one person or another. I strongly suggest that you consider becoming the facilitator in family meetings for your clients. The reason I say that is that many of us have developed long-term relationships with our clients over the years, but we don’t know their children very well.

By becoming the facilitator of the family meeting, you get to know the adult children as well as you know Mom and Dad, and you can talk about some issues that face the family. As the facilitator, you’re looked to by the entire family as the trusted advisor. Just stop and think: With how many of your clients’ adult children do you have a relationship? Can you name your five best clients’ children? When was the last time you met with their children?

Statistics have shown us that 90% of the assets pass to another advisor when our clients die. I was speaking to a group in New York City. One advisor there told me, “The only time I find out a client has died is when I get the ACATS form indicating that assets are being transferred. It’s disappointing because I’ve spent much time working with these clients for many years, and all of a sudden, the money is gone, and I have no idea whom the children have chosen to be their advisor.”

Once you identify the alpha child, who will help you put together the meeting, speak with each member of the family individually to develop an agenda. What needs to be discussed? Are there financial issues? Are there legacy issues? Are there end-of-life care issues?

This family meeting might be the first time that the family has sat down and talked about important issues. It’s especially important for families to do this if one or more of the members is starting to lose their mental capacity. Sometimes, these meetings can occur in just a few hours. I did one family meeting that was two and a half days, but by the end of that meeting, the family had developed an entire plan for how to take care of their parents going forward. It was very successful.

Once you have the family meeting, then you follow up with the procedures to continue developing what happened from the family meeting. I have something called the “family meeting checklist” that you can utilize to get the details of what needs to happen in the family meeting. It is an extremely valuable resource for you that can help you with developing a relationship with the entire family and making sure that the adult children know what their parents’ situation is.

What is a FINRA “Trusted Contact”?

Another thing I’ll mention as part of the FINRA requirements is to identify a client advocate. I suggest that with every new client, you define a client advocate, or what FINRA calls a “trusted contact.” This is the person you look to if that client is starting to show diminished capacity. It says, “I authorize my advisor to contact my client advocate anytime in the future to provide him or her with financial updates and send him or her statements summarizing my financial accounts. I also authorize my client advocate to accompany me to all future meetings with my financial advisor.”

You can see where this will become important if a client starts to lose their mental capacity and they’re in a meeting with you as your advisor, and you start to make recommendations to them. They may agree with you, or they may disagree with you, but if you go forward with those recommendations, three months later, they’ll say to you, “I didn’t agree to do that. I’ve lost money here. Why are we doing that? What happened?”

Sometimes you find clients are no longer able to manage their finances. There are many people out there today who are available to provide money management for them, to only pay their bills and keep track of their checking and banking accounts for them.  Professional money management in many situations works well, and in conjunction with that, use the EverSafe program to keep track of any unusual things that happen in the account.

State Adult Protective Services

If you feel there is elder abuse going on in your client’s account, you need to become aware of Adult Protective Services in your state. Each state has an Adult Protective Services department that’s available for people to make claims if they feel that someone is being taken advantage of. Those people who are in the healthcare profession who are healthcare providers are required to make those referrals if they think there is abuse going on within the family.

As a financial advisor, you are not required to do that. You can make anonymous referrals, or if you are covered under the Senior Safe Act and have received training, you can go to the Protective Services, make a complaint to Protective Services, and protect yourself from a lawsuit.

So, Protective Services in your state is the organization to get ahold of, so look on the internet to find out who provides protective services in your town, in your state, and in your community, contact them, and find out what their provisions are and how to work with them. That is the last resort that you have to protect your clients.

Key takeaways for protecting elder clients from financial abuse

First, take advantage of the form that I utilized – the client advocate form – and request that each new client that you have to provide you with a trusted contact. It might not seem important when you first take on a client, but at some date in the future, if you feel that they’re having difficulties, you’ve got that person to whom you can reach out. That trusted contact will be a very valuable advocate to help you, so request that each new client sign this form.

Secondly, update your own Life Folio. Is all your financial information collected in one place? If you had a family emergency tomorrow, would your family be able to gather together all that information that they need to know to take care of you? Again, you can download the Life Folio System and fill that out for yourself and your own family.

Thirdly, plan and hold a family meeting with one of your clients. I guarantee you will find it to be a compelling experience. I’ve seen that in the many families that I’ve worked with, the family meeting was a life-changing experience for the entire family. They felt that they were now speaking on a level never expressed on before, and they were talking about things that were very important.

Your older clients have many things they want to share with their family, and they’re not sure how to do that, and they’re not sure where to start and how to present those ideas to their family. By your help in supporting them in creating a family meeting, you’ve given them the opportunity to show that information to their family. It provides peace of mind to our older clients that they never had before.