This post was authored by Adem Tumerkan, Dunham's Content Writer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

As a financial advisor, helping to protect your elderly clients isn't just a responsibility - it's a moral imperative.

And with financial scams targeting elderly clients on the rise, your role as their trusted advisor has never been more crucial.

In Part 1, we went over why baby boomers are prime targets for fraud (read here). And in Part 2, we covered the biggest scams they face (read here).

Now, it’s time to equip you with the tools to defend them from this web of scams.

Thus, here are some of the strategies that will give you the legal know-how, ethical guidance, and trust-building skills you need to help keep your elderly clients safer.

Essential Legal Tools for Preventing Elder Financial Abuse and Scams

Let’s dive into the key legal tools that help financial advisors protect their elderly clients from fraud and scams.

1. Using Power of Attorney to Protect Elderly Clients from Financial Abuse (PoA): This is one of the strongest legal tools for helping the elderly¹. It essentially allows a trusted individual to manage an elderly person’s finances if they become unable to do so (such as from cognitive decline), therefore reducing the risk of unauthorized actions or fraud. However, it's crucial to select a trustworthy agent and clearly define their responsibilities to prevent potential misuse of this authority.

• General PoA: Provides broad control over financial matters.
• Durable PoA: Remains in effect even if the client becomes incapacitated.
• Limited PoA: Offers control over specific tasks, such as managing an investment portfolio.

Your Role as a Financial Advisor: You play a critical role in helping your clients select the right person for PoA, ensuring it's tailored to their specific needs. Early action is key so that it allows your clients to remain in control of their decisions.

2. Guardianship as a Last Resort: Guardianship comes into play when a client can no longer make decisions and hasn’t set up a PoA². This legal step acts as an emergency brake, giving the court authority to appoint a guardian who will act in the client’s best interest.

• When It’s Needed: Guardianship should be used only as a last resort when no other options remain.
  
• Legal Process: Courts investigate whether guardianship is necessary, ensuring the client’s best interests are protected.

Your Role as a Financial Advisor: Guardianship is a significant responsibility. And as a financial advisor, you must advocate for your clients to use it only when absolutely necessary. It’s essential to consider all alternatives before pulling this emergency brake.

3. Elder Financial Abuse Laws: Understanding and applying elder financial abuse prevention laws is crucial for protecting your senior clients. Both federal and state laws act as guardrails, preventing financial exploitation.

• Elder Justice Act: A federal law ensuring financial abuse is reported and prosecuted³.
  
• State Laws: These state laws offer additional layers of protection and can vary in scope⁴.

Your Role as a Financial Advisor: Set up systems that allow for early detection of financial abuse, such as unusual transaction alerts. Regularly monitoring your clients' financial activities ensures their continued protection against scams and fraud.

Ethical Responsibilities for Financial Advisors to Prevent Elder Financial Scams

Beyond legal tools, financial advisors have a moral and ethical responsibility to protect elderly clients from financial harm. Acting in their best interests goes beyond simply managing money - it's about safeguarding their well-being.

Fiduciary Responsibility and Duty of Care: As a fiduciary, you are legally and ethically bound to act in your client’s best interest. This includes ensuring they make informed decisions and protecting them from potentially harmful financial moves. Regularly reviewing their financial decisions is akin to performing routine maintenance on a vehicle—ensuring everything remains in working order.

Clear and Empathetic Client Communication: Communication plays a significant role in maintaining trust with elderly clients - especially those facing cognitive challenges. Simplifying complex topics and using clear language are crucial for building trust. Providing written summaries of financial decisions helps ensure they understand their choices - much like a user-friendly manual for dealing with financial matters.

Your Role as a Financial Advisor: Encourage clients to ask questions and foster an open line of communication, making certain they feel comfortable discussing any concerns.

Emotional and Psychological Support: Elderly clients are often more vulnerable to emotional manipulation - especially in cases of elder financial abuse or cognitive decline.

• More worrying is that cognitive decline is hitting Boomers faster than previous generations, making it harder for them to spot and fend off scams⁵.

Thus, financial advisors must be aware of these vulnerabilities and provide not just financial advice but also emotional support.

Your Role: Regularly check in with your clients, paying attention to signs of cognitive decline or emotional distress. Referring them to care managers or mental health professionals may be necessary so that they are better protected.

Case Study: Protecting a Client from a Devastating Investment Fraud

The Scenario: Meet Susan, a financial advisor who has been working with Mrs. Jenkins for over a decade. At 82 years old, Mrs. Jenkins was a widow who relied heavily on her investment portfolio to sustain her retirement. One afternoon, Mrs. Jenkins excitedly told Susan about a "once-in-a-lifetime" investment opportunity that a charismatic financial guru introduced her to online. He promised returns of 20% within six months - a deal too good to pass up. Mrs. Jenkins wanted to withdraw $250,000 to invest immediately.

Red Flags: Susan's alarm bells went off. The guaranteed high return, the urgency to invest, and the unverified online source pointed to classic signs of an investment fraud scheme (like a Ponzi scheme). But rather than shutting down the conversation, Susan knew she needed to guide Mrs. Jenkins carefully through the potential dangers of this “opportunity.”

Susan’s Approach:

1. Expressing Genuine Interest: Rather than dismissing the opportunity, Susan acknowledged Mrs. Jenkins' excitement. She listened carefully, allowing Mrs. Jenkins to explain the details. This built trust and made Mrs. Jenkins feel respected, not dismissed.

2. Unpacking the Offer: Susan calmly asked critical questions – such as:

“What do you know about this financial expert?”
“Have you done any research on his company?”
“How is he guaranteeing such high returns in such a short time?”

These questions helped Mrs. Jenkins start thinking more critically about the offer.

3. Explaining the Signs of Investment Fraud: Susan used this opportunity to educate Mrs. Jenkins about common investment fraud tactics. She explained how fraudsters often lure retirees like her into risky ventures with promises of "too-good-to-be-true" returns and added pressure to invest quickly. Susan also shared stories of victims who had lost their life savings in similar scams (note that the elderly lost over $1.2 billion last year alone to investment scams)⁶.

4. Performing Due Diligence: To protect Mrs. Jenkins, Susan offered to perform a thorough background check on the company and the individual promoting the investment. With Mrs. Jenkins' permission, Susan researched the so-called financial expert and found several reports of fraud linked to him, as well as complaints filed by other seniors who had lost money.

5. Providing Safer Alternatives: Instead of simply turning her down, Susan presented Mrs. Jenkins with alternative, legitimate investment options tailored to her financial goals. These options offered security and steady growth without the high-risk promises.

Outcome: Thanks to Susan’s expertise and vigilance, Mrs. Jenkins avoided falling victim to the fraudulent scheme. She ultimately chose to reinvest the $250,000 into a diversified, lower-risk portfolio that provided durable and sustainable growth. Mrs. Jenkins later learned that many others had fallen prey to the scam, losing millions in total. Grateful for Susan’s intervention, she thanked her for protecting her financial future.

Proactive Steps to Help Protect Your Elderly Clients

Financial advisors play a key role in protecting their elderly clients’ financial futures. Here are some proactive strategies that can help with this:

• Implement Detection Systems: Set up alerts for unusual transactions to catch potential scams early.
  
• Maintain Clear Communication: Ensure your elderly clients understand their financial decisions by providing written summaries.
  
• Regular Reviews: Routinely review their financial activities to spot any red flags.
  
• Provide Emotional Support: Be mindful of emotional manipulation and cognitive decline, referring clients to professionals when necessary.
  

Your Role in Helping Build a Better Future for Seniors

Your role as a financial advisor goes beyond managing portfolios. You help protect your clients' financial security, especially as they grow older.

And by using tools like Power of Attorney, being aware of elder abuse laws, and maintaining open communication, you can help them stay protected from financial scams.

With vigilance and expertise, you can support your clients’ financial well-being and build lasting trust. These strategies may not only reduce the risk of exploitation but also give your clients confidence in their most vulnerable years.

Sources:

1. Tips For Protecting Your Loved One From Elder Financial Fraud | Morada Senior Living
2. Guardianship: 10 FAQs We Can Answer For You - Sequoia Financial Group (sequoia-financial.com)
3. What You Need to Know About the Elder Justice Act - Institute on Aging (ioaging.org)
4. Elder Financial Abuse Laws by State - Stone Sallus (stonesalluslaw.com)
5. Boomers Show Greater Cognitive Decline Than Earlier Generations | Next Avenue
6. Elder Fraud, in Focus — FBI

 Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.

Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information.  This document is provided for information purposes only and should not be considered as investment advice.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.