Protecting Older Loved Ones

August 23, 2012

It’s hard to be productive at work when financial worries accompany you to your desk. It’s hard to let go of concerns about a sputtering economy or uncertainty about taxes, particularly if you start your work day with a newspaper.

But if you are in your forties, fifties, or sixties, you may be lugging an even heavier issue in your briefcase. At this age, you may have an elderly relative who requires care. According to the National Alliance for Caregiving and AARP, over 1 in 4 American households have cared for an aging relative in the past 12 months, and the average age of the primary caretaker is 49.2 years. Of these caretakers, a significant majority is employed.

We generally think of elder caretaking as protecting and providing for their physical safety. But what about financial safety? At the Certified Financial Planner Board of Standards, we have recently been focusing on the problem of rampant elder abuse, which results in billions of dollars in financial loss each year. Problem is, it is rarely reported by its victims, who may be afraid of repercussions, confused about what has happened, or too embarrassed to admit that they have been “had.”

As a current or future caregiver to an elderly loved one, you need a three-pronged response to financial abuse. First comes understanding the special vulnerabilities of the elderly to misleading or fraudulent financial practices. Second, you need to be aware of the warning signs of common abuses. Third, rather than stewing at your workplace wondering “What if?” you should start developing a proactive plan for preventing or dealing with financial exploitation of an aging family member.

Understanding senior financial abuse

The elderly make easy targets for financial abuse. They tend to be more trusting of the advice of so-called “experts,” while at the same time they may be losing their mental acuity. But often the last person they want to intervene is their own child or relative. Turning over financial information or documents to a family member can be as traumatic and demoralizing as being told they can no longer drive.

Another reason why seniors are so often victimized by financial scammers is because they, of all generational groups, are most likely to have significant amounts of money in the form of accumulated savings or home equity. They are also interested in income-producing investments to supplement pensions or Social Security and therefore can be easily lured by promises of high interest rates, which carry unacceptable risk or are simply untrue.

Identifying the red flags

It’s easy to tell when an elderly person is in physical trouble. She’s not eating regularly. He’s fallen several times. Not so apparent are the signs of financial abuse at the hands of another individual. Be on the look out for sometimes-subtle changes in behavior, such as:

  • Expressions of financial worry, particularly when there is little reason for such concerns
  • Changes in long-established spending patterns
  • Reference to a “new friend” who is helping on financial matters or who comes to the home
  • Inability to pay bills that have formerly always been paid
  • New secretiveness about finances
  • Large withdrawals from checking, savings, retirement and/or brokerage accounts
  • Mention of an investment that pays much higher rates of return than what is generally available in the market

Be alert, too, to the elder’s social or community activities that seem to be connected to investing in some way. Many seniors get caught up in affinity fraud, in where they are induced to invest in a scam or Ponzi scheme because others from their religious community or social circle are also investing. And if your senior talks about going to a “free lunch” seminar, a red flag should be raised in your mind.  Often these events are thinly disguised high-pressure sales pitches, with the goal of getting the senior’s personal information as the next step to getting them into a totally unsuitable investment.

Creating a preventive, proactive plan

You may think you know your elderly relative really well. After all, she has been in your life for a very long time.  But your plan to protect her from financial exploitation requires you to get to know her even better – particularly when it comes to her financial circumstances, attitudes, and goals.  Too often, money is the one subject we are reluctant to talk about with our parents or relatives, because we worry that we’ll be seen as looking for a handout or overly eager for an eventual inheritance.

Your financial abuse protection plan begins with a conversation. Start where CFP® professionals always begin when they do financial planning: with goals and hopes for the future. Ask your senior how he wants to spend his days and what he most enjoys.  From there, perhaps in a subsequent conversation, you can broach the subject of the financial resources available to support his goals. Be sure to explore the what-if questions: “What if you are no longer able to make your own financial decisions?” “or What if you need nursing care?”  Keeping the focus on what your elderly relative wants for his life may make these difficult discussions much easier and assure him you are trying to help rather than interfere.

Talk, too, about the prevalence of financial fraud, and the special dangers of the Internet, unsolicited phone calls, and exaggerated radio ads.  Keep it simple and direct. Tell your senior never to send money in order to get money, never wire or send money overseas, and never to give or invest money without first receiving the request in hard-copy print.  Even then, it’s a good idea to ask a trusted third party to review it.

In particular, consider engaging a CFP® professional on behalf of your relative to help facilitate these discussions. This type of advisor is bound by his certification to put the interests of his clients ahead of his own and to keep all discussions confidential. In this way, your relative can be assured that the advisor is looking out for her and no one else, including you.

Make sure to get a Power of Attorney in place for your relative so that in the event she can no longer make good decisions, someone can step in.  This, too, is a subject that can be effectively addressed by a CFP®professional and/or estate planning attorney as a routine matter of financial management.

Finally, if you believe that your senior has been exposed or victimized by fraud, report it. One reason senior financial abuse is so prevalent is because it is so often unreported. There are several regulating and supervising agencies you can go to, depending on the nature of the complaint:

  • Your local law enforcement agency (police or sheriff’s departments)
  • The Financial Industry Regulatory Authority (FINRA) if it involves a financial security
  • The Securities and Exchange Commission or your state’s securities regulator if it involves investment advice
  • The Consumer Financial Protection Board if it involves financial products, particularly banking services such as credit cards
  • Your state insurance commissioner if it involves an insurance product

You can also go to the U.S. Administration on Aging’s National Center on Elder Abuse for additional reporting resources.

In fall 2012, the CFP Board will be releasing its Seniors Guide to Financial Self-Defense with more information and practical tips to prevent financial abuse of the elderly (www.cfp.net).  For you and the elders you care about, the guide can be that ounce of prevention that’s worth many pounds of cure!