Regulators are stepping up efforts to protect seniors, but you still need to build your own safety net.
By one estimate, older Americans lose up to $30 billion a year to elder financial abuse—the misappropriation of their money by con artists or thieves who are total strangers to them or even trusted friends or family members.
These crimes often go unreported because victims are ashamed to speak up or are unable to do so.
But that may soon start to change. The government and the financial services industry are finally taking steps to encourage people who are in a position to spot elder financial abuse—including brokers, bankers, and financial advisers—to act on and report what they see.
A new rule issued by Finra, the self-regulatory agency that oversees brokers, goes into effect Feb. 5. It requires brokers to ask customers, regardless of age, to provide the name of a trusted contact, such as a family member or friend. The broker could reach out to that person if there is reason to believe the client is being exploited financially—say, because they are suddenly withdrawing large sums of money—or suffers from cognitive impairment, says Jim Wrona, associate general counsel at Finra.
Under the new rule, the request for a trusted contact must be made when opening accounts for new clients. For existing clients, the request can be made when the firm routinely reaches out for updated information. (The broker is only required to ask for a name; the client does not have to provide one.)
The Finra regulation also allows brokers to place a hold on withdrawals from the account of a client when they have a reason to believe there is financial exploitation. The initial hold lasts 15 business days, but it can be extended an additional 10 business days.
“This rule has the potential to help by giving financial professionals the confidence they need to step in to prevent abuse,” says Barbara Roper, director of investor protection at the Consumer Federation of America, an advocacy group.
Broader government efforts to combat elder fraud are also underway. In 2014, the North American Securities Administrators Association, a group of securities regulators, released a model rule that mandates that both brokers and financial advisers report suspected abuse of the elderly or other vulnerable adults, such as those with disabilities, to state authorities. The rule also allows them to stop withdrawals from those accounts.
The NASAA model rule also protects brokers and advisers from liability if they stop account disbursements, says Joseph Borg, Alabama securities commissioner and NASAA president. To date, 13 states, including Maryland and Texas, have enacted versions of the model rule, and more states are likely to do so this year, Borg says.
On the federal level, a bipartisan bill now in Congress, the Senior Safe Act, would enable the employee of any financial institution, including banks and insurers, to report concerns about elder financial abuse without fear of being held liable for disclosing private information. The bill was passed by the House last week.
Still, you can’t rely on government legislation alone to protect your family’s finances. In the end, the most effective way to prevent elder abuse is to set up your own safeguards. Here are three key steps to consider.
Start the Money Talks
“The biggest risk factors in elder financial abuse are isolation and cognitive impairment,” says Austin Frye, a financial planner in Aventura, Fla. “So it’s important to reach out to your parent, stay in touch, and ask questions.”
You will want to know if your parent is keeping up with bill paying, or if he or she is in contact with strangers or new friends who may prove to be a risk.
Of course, your mom or dad may not be eager share their financial details, and you don’t want to be too intrusive or suggest that your loved one is no longer competent. So ease into the conversation, perhaps by sharing your own money worries and asking for advice. Or perhaps enlist one of your parent’s friends in the discussion.
If your parent is willing to accept some help with one or two tasks—perhaps with bill paying—start with that. Keep it low-key by wrapping in a social activity, such as going out for meal or visiting friends afterward. As you keep the connection going, you can gradually step up your support if your parent requires it.
Set Up Checks and Balances
Make sure your parents have essential legal documents in place that will enable you or other family members to help if they need it. This includes a will, a healthcare proxy, a HIPAA release form, and durable power of attorney, which will let you pay the bills and manage finances if they can no longer do so.
Your parent will want to give careful thought before selecting which family member or friend should be given the financial responsibility.
“Many people come at it by default, perhaps choosing the oldest child,” says Michael Amoruso, an elder law attorney in Rye Brook, N.Y. “But it’s better to consider which person is most likely to put their parents’ interests ahead of their own interests.”
As a further precaution, consider having more than one person on the power of attorney, who can act together or separately.
“If everyone is consulting each other and everyone is getting statements, that’s a better safeguard,” Amoruso says.
Streamline Your Parent’s Finances
“Many older people end up with a lot of different accounts because they have been chasing the latest high-interest rate offer,” says Shirley Whitenack, an elder law attorney in Florham Park, N.J. To make your parent’s finances more manageable, consolidate accounts where possible.
But be careful about moving or closing accounts.
“You don’t want to break into a CD and incur penalties,” Whitenack says. “With 401(k) and IRAs, you have to do the rollovers the right way or you may be hit with taxes and penalties.”
It’s also important to maintain any beneficiary designations according to your parent’s wishes, or you might face legal challenges.
Simplifying money management will make it easier for you and other family members to monitor your parent’s accounts and spot any unusual withdrawals or transactions. That way, you can put a stop to any trouble quickly.
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