The requests started gradually - $1,000 here, then maybe another $1,000 several weeks later. Then the daughter might come asking for $2,000 and her mother would comply.

On it went.

Carolyn McClanahan, director of financial planning at Life Planning Partners in Jacksonville, Fla., cautioned her client that her daughter was taking advantage of her. But the client insisted on sending money to help her child, who had a long history of financial troubles, and had no compunction about pressuring her well-heeled mother for help.

“Basically the daughter was manipulating her, threatening her,” McClanahan recalls. “When you’re elderly, [and] children who you love that do that to you, what do you do about it? They don’t [have] the strength and wherewithal to stand up to that kind of pressure.”

When it was $25,000, which the daughter said she needed to refinance her house, McClanahan stepped in. If her client must send the money, McClanahan argued, at least structure it as a loan, with a repayment note — partly to avoid gifting problems but also to signal that the spigot would be shutting off.

McClanahan recalls, “I said to my client, ‘She’s probably not going to pay you back.’ ”

She didn’t. And the daughter kept asking for (and getting) more money, with her mother going around McClanahan’s back until she had to ask for more funds from her investments.

At that point, McClanahan got an elder-law attorney involved. The lawyer drafted a formal letter to all three of the client’s daughters, effectively putting them on notice that the mother was in jeopardy of losing her care at the assisted-living facility where she resided, and stating that there would be no more gifts.

The other two daughters, who were well aware of the situation and quite worried about their mother, welcomed the letter — they had no interest in squeezing their mother for money. (McClanahan also put the two responsible daughters on their mother’s accounts so they could monitor any movement of money.)

The other one took it hard, however. “The daughter in question got very angry. She said, ‘I will never talk to you again,’ and she didn’t,” McClanahan says. “And it stopped, and she quit talking to her mother. And it’s sad.”


Financial abuse of the elderly takes many forms. The perpetrators include family members, friends, caretakers, unscrupulous financial advisors and all manner of other schemers who target seniors over the phone, online or maybe by showing up to their mark’s home for a job.

The North American Securities Administrators Association reports that 34% of the enforcement actions that its members have taken since 2008 have involved elderly victims.

Yet the true scope of elder financial abuse is impossible to pin down in part because so many cases are entangled in complex family dynamics and might fall into a gray area. One person’s “abuse,” after all, can be another’s “inheritance.”

AARP cites a figure of $3 billion in annual losses, though the senior advocacy group notes that the actual costs are almost certainly far higher due to pervasive underreporting of incidents of abuse. Earlier this year, the firm True Link Financial published a study pegging the costs of elder financial abuse at more than $36 billion.

In fact, a New York state study, which drew on a set of phone surveys with elder residents and state authorities, concluded in 2011 that only one out of 23.5 cases of elder abuse are reported — and of cases involving financial abuse, the study estimated that just one of 43.9 incidents are reported to social services, legal or law enforcement authorities.

“Unfortunately, I would say both huge and unknown,” Thomas West — an elder abuse expert and a senior associate at Signature Estate & Investment Advisors, an RIA in Tysons Corner, Va. — says of the scale of the problem. “Exploiting an elder is so often unreported that I’d have to say that what’s visible right now is only the tip of iceberg.”

Experts point to several prevailing conditions that have created a seedbed for elder abuse, headlined by an aging population, longer life spans, rising rates of cognitive impairment and the greater responsibility individuals have for financing their own retirement amid the decline of defined-benefit pension plans.

Taken together, these trends create what Eleanor Blayney, consumer advocate at the CFP Board, calls a “perfect storm” for financial exploitation.

“Many times [the elderly are] embarrassed because they don’t like to admit they’ve been had,” Blayney says. “Sometimes the elderly person cannot bring him- or herself to call this person to account. Think about someone who’s been scammed by a child or a caretaker. These are close, intimate people and they may be scared to report them.”


The issue has drawn the attention of officials at the federal, state and local levels who have been considering a variety of policies to help combat elder financial abuse, including giving advisors and other financial professionals new tools to protect their clients from being fleeced.

In 2010, Washington state enacted a law authorizing (but not requiring) financial professionals to defer action on a request to move funds when they suspect that client might be the victim of abuse. That statute allows for a dispersal delay of up to 10 business days if the transaction involves the sale of securities, and up to five days for other transactions.

Financial professionals who delay a transaction under that so-called pause law are required to notify adult protective services and local law enforcement, and to “make a reasonable effort to notify all parties authorized to transact business on the account orally or in writing.” Lawmakers in Missouri have passed a similar statute.

Page Ulrey is a senior deputy prosecuting attorney at the King County prosecutor’s office in Seattle, where she has served as a dedicated elder abuse prosecutor since 2001. Ulrey credits her state’s pause law with boosting the reporting rates of elder abuse cases, though even she says her office still only sees “a tiny fraction of the cases that are occurring.”

“It’s definitely a step in the right direction,” she says. “We’re definitely seeing a lot more cases and I can only assume that it’s at least in part because of that law.”

Last July, NASAA convened the Committee on Senior Issues and Diminished Capacity to explore avenues to address elder financial abuse and evaluate potential legislation, training programs and best practices for brokers and advisors.

The pause law is of particular interest, says Lynne Egan, Montana’s deputy securities commissioner and chairwoman of the committee; her panel is currently developing a model rule based on the Washington statute, including the requirement to report the incident to state authorities.

Although she stresses that the proposal is still in the early stages of development, Egan says she expects NASAA to push out a model rule next year.

“The industry wants to do right by its clients, and at times it is difficult to do right out of fear of retaliation, out of fear of regulation,” Egan says. “We’re looking for a uniform approach to give the industry some tools.”


Another NASAA proposal, placing restrictions on advisors who advertise themselves as senior client specialists, has been adopted by more than 30 states — addressing what experts describe as a pervasive problem.

“We had one gentleman call himself a ‘senior safe money specialist.’ And that means absolutely nothing,” Egan says. “There are a lot of credentials that you buy that almost come in a Cracker Jack box.”
AARP, meanwhile, has been lobbying state regulators and legislators across the country on a variety of issues, including tougher penalties for abusers, securing funding for adult protective services agencies and local task forces, and uniform laws that would recognize adult guardianship and power-of-attorney agreements across state lines.

In general, statehouses have responded more swiftly than the feds to concerns over elder financial abuse. “When it comes to actual regulations, states have been more aggressive than the SEC,” says Daniel Bernstein, chief regulatory counsel at MarketCounsel, a compliance consultancy.

AARP now counts more than a dozen state laws that were enacted in 2014 to address elder financial abuse, according to a fact sheet provided by a spokesman.

Some states have been moving to impose stiffer fines for elder abuse, and Indiana and Montana have set up restitution funds to compensate victims. A law on the books in Washington requires brokers and advisors to provide staff with training on elder abuse issues.

And in every state but New York, adult protective services laws require designated persons — a group that may include financial advisors — to report suspected elder abuse in at least some circumstances, according to Lori Stiegel, senior attorney with the American Bar Association’s Commission on Law and Aging.

But national authorities are following suit. In letters outlining their examination priorities for 2015, both the SEC and FINRA raised concerns about the nature of the advice senior investors receive from RIAs and brokers.

Rick Fleming, the SEC’s investor advocate, says he believes that the commission has a role to play in addressing elder abuse, but that he is still thinking through what a proper federal policy would look like. “I’m still pretty early in the process. I’m still in listening mode,” Fleming says.

In a speech earlier this year at the American Retirement Initiative’s winter summit, Fleming expressed cautious support for a federal rule that would enshrine the tenets of Washington state’s pause law, though he raised a number of questions about how such a regulation might be implemented: How long should brokers and advisors be able to delay a transaction while they investigate signs of abuse? What if the transaction were legitimate, and the client urgently needed the money to pay for rent or long-term care? How would the reporting mechanisms work, and who within the broker-dealer or advisory firm would have the authority to delay a transaction?


Of course, no law or regulation will stop scammers from preying on the elderly, and experts note that there are several steps that advisors can take to better detect and prevent abuse, including training staff and keeping in regular contact with clients.

“Communication is incredibly important at all times, but especially important when people age,” says Paul Saganey, president of Integrated Financial Partners in Waltham, Mass. “Just call them — say hello, spend some time on the phone with them.”

Saganey and others point out that one of the most reliable indicators of abuse comes when clients make a request that veers sharply from their investing pattern and runs counter to the plan they have developed with their advisor. Those concerns mount when the client has trouble articulating the rationale for selling securities or withdrawing money from an account.

But those situations can put advisors in a tough spot. After all, the industry is constitutionally inclined to act on clients’ wishes.

Even with the legal cover provided by a pause law like Washington state’s, many advisors would still be reluctant to push back forcefully against their clients’ instructions. “When you’re a financial planner, you can’t tell people how to spend their money,” McClanahan says. “But you can start saying, ‘Hey, this is a concern to me.’ ”

McClanahan was able to put an end to the demands for money by engaging with an elder-law attorney. Many advisors stress the importance of building a team around the client, establishing a network of professionals that can serve as a safeguard against exploitation, or respond swiftly to mitigate losses when abuse has already occurred.

“In almost every situation, we get to know their accountants and their attorneys — and if they don’t have one, we’ll make the introduction,” says Joseph De Sena, president of Siena Wealth Advisory Group, an Ameriprise firm in Melville, N.Y.

However, advisors are bound by rigid privacy protections that limit the extent that they can discuss clients’ affairs with others, even family members. So even in states where advisors are required to report suspected abuse to an adult protective services agency, they could be barred from talking to a client’s relative.

“I can’t just pick up the phone and talk to their kid about what I think is happening,” says West. “I’m at some risk if I just pop off at the mouth about what I hypothesize is happening.”

In that light, then, many advisors say it’s imperative to talk with aging clients early on about whom they can contact down the road if they suspect abuse is occurring. De Sena suggests setting up an “invisible fence” around clients’ assets to protect against abuse; he also says he makes sure that every client has signed estate planning documents, which could include a power-of-attorney agreement, living will or health care proxy.

A client’s children or other relatives can be a critical line of defense, De Sena and others say. Opening the lines of communication with the client’s family members can help safeguard an inheritance.

Tom Hebrank, president of Advanced Planning Solutions in Marietta, Ga., suggests setting up a trust that requires multiple signatures before a transaction can be executed. That tactic, Hebrank says, can be an effective protection against a common scam in which a person in a position of trust convinces a senior to alter their will.

“When the older adults are still more competent, probably when they’re in their late 60s or 70s, they need to plan for how they’re going to protect their assets, protect their will,” Hebrank says. “I think the key is [to] put up some barriers so transactions cannot easily occur.”

Advisors roundly agree that those conversations are challenging. No one relishes the prospect of talking about cognitive decline, scam artists or end-of-life issues, after all.

But doesn’t that mean that many clients aren’t likely to work through those challenges on their own? McClanahan contends that raising those issues, and putting a plan in place, is one of the most essential duties of advisors who work with older clients. “That’s the deal. You’ve got to tackle this long before the situation arises,” she says. “When you have those conversations when people are healthy, it’s a lot easier.” 

Kenneth Corbin is a Financial Planning contributing writer in Cambridge, Mass., and Washington, D.C. Follow him on Twitter at @kecorb.

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