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Laws Help Advisors Flag Fraud
My uncle did not recognize the caller when his phone rang one morning in the fall of 2014. But the predator on the other end of the line was well-informed and convincing.
The caller said he had kidnapped my cousin, and demanded a ransom. As my uncle made arrangements to pull thousands of dollars from his retirement savings, he was fortunate enough to reach his daughter on the phone. 
The scheme had been very convincing. Only after my uncle had spoken with my cousin, his grandson and officers from two different police departments was he convinced that she was safe and he did not need to go through with the money transfer. He had been the victim of a cruel hoax and attempted financial fraud. 
Unfortunately, financial exploitation involving older people is not rare. Seniors are often targets because they are thought to have significant savings or investments, according to the National Council on Aging. They also are seen as soft targets who are unlikely to report financial crimes. Dementia and cognitive impairment can make segments of the senior population particularly vulnerable.
It is a big problem. A 2011 MetLife study found that elder financial abuse in the U.S. costs its victims $2.9 billion per year. Other research says the losses are as much as 12 times higher. In fact, no one knows the true extent of the crime, because as few as one in 44 cases of elder financial abuse is reported to authorities.
My Uncle Terry was a very smart man. He worked for decades as an electrical engineer and aerospace manager with the Boeing Company and collaborated on projects with NASA. He was the closest person to a rocket scientist I have known.
He was also financially savvy and had made smart investments to accumulate a solid retirement portfolio. If someone like him could be vulnerable to financial fraud, anyone can be.
In many cases, a professional financial advisor may be the first to recognize the signs of potential financial exploitation. An advisor might see the suspicious withdrawal or reallocation of a client’s assets, for example. Or a potential victim may ask the advisor about a questionable investment scheme.

NAIFA’s Efforts to Protect Older Americans

NAIFA strongly encourages laws that would allow advisors to protect their older clients. These efforts include the development of model legislation that would permit advisors to report suspicious activity and possibly head off dangerous transactions. NAIFA also has suggested changes to a proposal by the North American Securities Administrators Association (NASAA) to make their model legislation more effective.
State reporting laws would provide greater protection to older Americans, but to be effective they must also shield advisors from liability and other consequences. Some proposals would make reporting mandatory. This would be a mistake, as advisors using an abundance of caution could unnecessarily overwhelm investigators.  
Under NAIFA’s model legislation, reporting would be voluntary, and advisors could not be held liable. They would report their suspicions to their broker/dealers or financial institutions, which would then determine whether to refer cases to state regulators or law enforcement.
Another provision would permit state insurance departments to provide training resources to help advisors recognize signs of cognitive decline while acknowledging that advisors are not medical professionals and will not be held responsible for determining a client’s cognitive condition.
“NAIFA members develop close relationships with their clients and are well placed to recognize suspicious activities,” said Jules Gaudreau, NAIFA president and president of The Gaudreau Group. “But we aren’t law enforcement or investigators. It wouldn’t be fair to punish advisors for reasonable, good-faith actions. Brokerages and financial institutions have dedicated fraud investigators better suited to ultimately determine the merits of a case.”
It is unfortunate that there will always be people willing to prey on older Americans, such as my uncle, who have worked hard their entire lives and have been responsible about preparing for retirement. It is important to offer these people any protection we can, and professional financial advisors can play an important role. 
“NAIFA members are already in the business of protecting the financial security of our clients,” Gaudreau said. “Senior protection laws that give us an active role in preventing financial exploitation simply make sense.” 

Mark Briscoe is senior director of strategic communications at NAIFA. Mark may be contacted at [email protected] .

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