What is Elder Financial Exploitation?
Elder financial exploitation or abuse refers to the illegal or improper use of an elderly person’s funds, property, or assets for someone else’s benefit. This type of exploitation often involves deception, coercion, or undue influence exerted by individuals close to the elderly person, such as family members, caregivers, or even strangers. If you or someone you know experienced elder financial abuse, an experienced attorney from The White Law Group can help.
Typical forms of elder financial exploitation include theft, scams, fraudulent schemes, and abuse of power of attorney or guardianship.
Elder Financial Exploitation Under-reported
While the answer to the question of what elder financial exploitation is is clear, its economic impact is not. In 2019, the numbers ranged from $3 billion to $37 billion annually. In 2011, Investment News reported older Americans were being financially abused by family members, strangers, and businesses to the tune of $2.9 billion a year. Most likely, those numbers are vastly underreported. According to the National Adult Protective Services Association (NAPSA), only 1 in 44 cases of elder financial abuse ever comes to light.
Suppose you are wondering about the impact of elder financial exploitation on an individual level. In that case, data compiled by the U.S. Consumer Financial Protection Bureau show that between 2013 and 2017, those over age 70 lost an average of $41,800 to elder financial exploitation.
In 2023, the FBI reported that seniors lost $3.4 billion to scams, marking a significant increase from previous years. Additionally, the Federal Trade Commission (FTC) highlighted a surge in fraud involving Bitcoin ATMs, with seniors losing $110 million in 2023—a nearly tenfold increase from 2020.
Given that many cases of elder financial abuse go unreported—only 1 in 44 cases come to light, according to the National Adult Protective Services Association (NAPSA)—the actual economic impact is likely much higher.
Financial Advisors Role in Preventing Elder Financial Exploitation
FINRA Rule 2165 was created to protect seniors from exploitation. The Financial Industry Regulatory Authority (FINRA) is a self-regulator authorized by the United States Congress to oversee broker-dealer firms, protect investors, and answer the question of brokers’ responsibility in preventing elder financial exploitation. Elder financial abuse includes theft, fraud, misuse of a person’s assets or credit, or use of undue influence to gain control of an older person’s money or property should be on the alert.
Seniors may be especially vulnerable to financial exploitation if they are cognitively impaired or simply confused by complex financial opportunities or products. Advances in technology can make things even more complicated for seniors.
Researchers have attempted to determine what the cause of elder financial exploitation is and why it is so prevalent. Studies have reportedly shown that people tend to make poorer financial decisions as they age. They also are often lonely and more willing to talk to strangers.
FINRA Rule 2165: Financial Advisors Play an Essential Role
Your financial advisor could be your first line of defense against elder financial abuse if you are the keeper of your money.
The Senior Safe Act was passed into law in 2018, calling on financial institutions to train their employees to detect suspicious activity that might indicate elder financial exploitation. This includes understanding a client’s goals and determining whether an investment recommendation aligns with these goals. However, some financial advisors still may not feel comfortable identifying if a client is losing mental capacity or being exploited by a family member or friend.
Fortunately, Rule 2165, implemented in 2018, provides guidelines for its members to respond to situations where they believe financial exploitation may be an issue.
Other FINRA Rules regarding Elder Financial Abuse
FINRA seeks to remain current on what new forms of elder financial exploitation are emerging and whether their existing rules are sufficient to combat it. While FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) protects against brokers being beneficiaries on clients’ estates (to prevent possible conflicts of interest), after the recent upswing in elder financial abuse, FINRA put in place the first uniform, national standards to protect senior investors.
In 2018, the SEC approved the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) and amendments to FINRA Rule 4512 (Customer Account Information). The rules define what measures brokerages must implement to prevent elder financial exploitation and monitor over time to ensure their institution is compliant.
Rule 4512 – Customer Account Information
The Customer Account Information rule requires members to make reasonable efforts to obtain a trusted contact person’s name and contact information upon opening a non-institutional customer account or when updating account information to prevent elder financial abuse. The trusted contact person is intended to be a resource for the member to administer the customer account, protect assets, and respond to possible economic exploitation.
FINRA Rules 4512 and 2165 aim to protect investors from financial exploitation, but they differ in scope. Each rule also provides different guidelines on what steps a brokerage is expected to take to prevent elder financial exploitation.
Rule 4512 is a record-keeping rule that requires broker-dealers to obtain and maintain essential information about each customer’s account, including the customer’s investment objectives, financial situation, and any other information necessary to make suitable recommendations. The rule ensures that broker-dealers have accurate and up-to-date information about their customers, essential for detecting and preventing potential fraud and other forms of financial exploitation.
What is a Temporary Hold on Transactions for Accounts Suspected of Elder Financial Exploitation?
On the other hand, FINRA Rule 2165 permits broker-dealers to place a temporary hold on disbursements or transactions from the accounts of specific customers when there is a reasonable belief that the customer is a victim of elder financial abuse. The rule is intended to provide broker-dealers with a tool to prevent or stop potentially fraudulent activity that could cause harm to vulnerable customers.
FINRA Rule 4512 is a preventive measure that defines what information a broker-dealer must collect and maintain about its customers to prevent elder financial exploitation. At the same time, Rule 2165 is a reactive measure that allows broker-dealers to act if they suspect a customer is being financially exploited.
Both rules are essential to FINRA’s regulatory framework, and broker-dealers must comply to protect investors.
Warning Signs of Elder Financial Abuse
With in-depth access to a client’s financial activity, financial advisors have the unique opportunity to help protect their elderly customers from people attempting to defraud them. The following are a few ways that advisors and financial institutions may be able to detect whether a client is a victim of elder financial exploitation and in what form.
- Account balances: Financial advisors may notice, based on past activity, if their customer’s accounts are decreasing and why.
- Types of Transactions: Sudden changes such as wiring money out of their account or transferring funds using online banking should be investigated. Advisors should take note of any outgoing wires and large ATM withdrawals.
- Account Access: If a new person becomes involved in the client’s life, romantically or otherwise, this could be a warning sign, especially if the new individuals are suddenly given access to the customer’s accounts.
What to do if you or Someone you know is a Victim of Elder Financial Exploitation
When disputes arise between investors and securities firms or brokers, they may be required to resolve their differences through FINRA arbitration. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision.
The White Law Group’s elder abuse attorneys help clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary. If you believe you or a loved one has been a victim of elder financial exploitation and want to know what your options are, The White Law Group is here to help.
The White Law Group
The securities fraud attorneys at the White Law Group know FINRA rules and procedures and have experience in securities law and litigation. They can provide valuable guidance to clients on the strengths and weaknesses of their cases, the likelihood of success, and the potential risks and rewards of pursuing arbitration.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims against their financial professional or brokerage firm in all 50 states. We have partnered with clients to inform them of their legal recourse in cases ranging from elder financial exploitation to broker churning.
Since its launch in 2010, the firm has handled over 800 FINRA arbitration cases. It has offices in Seattle, Washington, and Chicago, Illinois, and reviews securities cases nationwide.
Free Consultation with a Securities Attorney
If you or someone you know has been the victim of elder financial fraud, The White Law Group’s securities attorneys may be able to help. Book a consultation online or call our offices at (888)637-5510 to speak with a securities attorney.
Frequently Asked Questions
FINRA Rule 2165 attempts to prevent the exploitation of individuals considered “specified adults.” According to FINRA, specified adults include anyone aged 65 or older or anyone 18 or older with a mental or physical impairment that prevents them from protecting their interests. The rule allows financial advisors to suspend the accounts of these individuals if they believe they are currently being exploited or have been exploited in the past.
Most U.S. states have hotlines you can contact if you suspect you or someone you know is a victim of elder financial exploitation. Suppose a financial advisor perpetrated the exploitation or failed to report it. In that case, you may also want to research lawyers in your area who have experience representing clients in elder financial abuse cases.
According to FINRA Rule 2165, financial exploitation is “the wrongful or unauthorized taking, withholding, appropriation, or use of a Specified Adult’s funds or securities; or (B) any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority regarding a Specified Adult.” Intent also matters. Under the rule, an action is considered exploitative if it is intended to gain control of a vulnerable person’s assets.
