Fighting Financial Exploitation of Seniors

Ulrey has been the dedicated elder abuse prosecutor — handling cases of elder financial exploitation, neglect, physical assault, sexual assault and homicide — for the past 13 years and has seen firsthand how elder financial exploitation cases are so challenging for the criminal justice system.

"Having historically deemed most cases of elder abuse as 'civil' or 'family' matters, the criminal justice system is only now beginning to come to terms with the fact that crimes are being inflicted on the elderly at alarming rates, and that only a small fraction of those crimes are ever properly investigated and prosecuted," she stated in her testimony. "As a result, we are woefully ill-equipped to handle these cases, both in terms of knowledge and resources."

Ulrey then recommended several actions for Congress and federal agencies to begin to address the problem more effectively—which included training of the law enforcement officers and detectives, prosecutors, judges, Adult Protective Services workers, financial services professionals and others who routinely respond to these cases.

She also suggested the need to develop infrastructure to support criminal justice handling of elder abuse cases at the local, state and federal level — such as been done similarly with the passage of the Child Abuse Prevention and Treatment Act in 1974 and the Violence Against Women Act in 1994.

"[T]he federal government made tremendous strides in building the infrastructure to respond to child abuse, domestic violence and sexual assault, not only at the federal and state level, but also at the local level," Ulrey said in her testimony. "There is a profound need for similar attention by the federal government to the issue of elder abuse."

Ulrey also stressed the need to increase research and data collection.

"We need to fund, pilot test, and collect data on the impact of specialized elder abuse detectives, prosecutors and victim advocates in a few jurisdictions," she added.

Sen. Richard Blumenthal, D-Conn., asked Ulrey whether she would endorse states adopting laws that would require financial institutions to report any red flags of financial exploitation.

"I would be delighted if that were made the law," Ulrey responded. "I think it would be a huge message to send if we do mandate it. I think we would also need to attach training. As long as we include that training component that would be a wonderful idea."

Advisors' Hands Are Tied

This very question — regarding the federal government's involvement with financial professionals' reporting of financial exploitation — was Investor Advocate Fleming's main question in his remarks at the American Retirement Initiative Winter Summit.

Financial professionals, Fleming said, often find themselves on the front lines, among the first to recognize signs of diminished capacity and red flags of financial exploitation. "With increasing frequency, financial professionals witness unfolding acts of financial exploitation, but they often feel limited in their ability to protect their clients," Fleming said. "For example, financial professionals are expected to comply with their clients' requests to withdraw or transfer assets, and rigid compliance with this basic rule would prevent a financial professional from blocking transactions that appear to be exploitative or outright scams. Financial professionals are also subject to privacy laws that limit their ability to contact a client's family members to discuss their concerns."

While some financial industry representatives have begun seeking some reforms, including the ability to "pause" transactions in which they suspect financial abuse, Fleming's question is whether similar measures should be adopted at the federal level.

"More specifically, should federal law allow a financial advisor to refuse or delay a transaction — contrary to the explicit instructions of the client — when it appears that the client is being defrauded or exploited?" Fleming's prepared remarks said.

Fleming's simple answer is "yes." But he follows up that yes with a web of questions to also consider.

• How long should the "pause" last? Fleming points to the Washington statute that permits a delay of 10 business days for a securities-related transaction. "Is that a long enough time for the local authorities to intervene with some sort of legal action?" he added.
• How much harm could be caused by such a pause? Fleming points out that a delay in a withdrawal of funds could "cause serious difficulties for the client, such as a missed rent payment, and it is easy to imagine a scenario where a firm or financial advisor delays a transaction out of self-interest, such as preventing a transfer of an account to a competing firm."
• If a firm delays a transaction, should it be required to disclose its suspicions to the government? If so, to which governmental body in particular? And, Fleming added, "are we confident that the government authority or authorities receiving the reports will have the resources to respond promptly and effectively to stop the financial exploitation?"
• Who should have the authority to decide whether to delay a transaction? Should it be an individual financial advisor, a branch manager, compliance officer, committee, or some other authority?
• What should be the legal threshold for allowing a firm to refuse to follow a client's instructions? Should it be a "reasonable belief" of financial exploitation, or should a higher threshold be required?

As Fleming put it, "The question really comes down to, "What can the SEC, self-regulatory organizations or Congress do to mitigate this growing risk of financial exploitation of seniors?"

—Related on ThinkAdvisor:

• FINRA Bars Ex-Broker for Stealing From Elderly Customer
• Financial Abuse Starts With Friends and Family, Not Strangers
• Elder Abuse Resources for Advisors
• Saving Exploited Elders
• Elder Financial Abuse Targeted by State Regulators
• Reporting Elder Scams Doesn't Break Privacy Law