Financial fraud among older individuals is responsible for nearly three billions dollars in personal loss each year. A recent article in the New York Times confirms that longer lives and increased years of retirements will result in even more financial fraud.
Financial institutions seem to be stepping up to the plate and stressing the importance of having safety nets in place including obtaining a name of formal trusted contact (rule passed in 2018 that requires financial advisers and brokers to "attempt" to obtain a name of a trusted contact from their client), and providing information on critical tools such as Power of Attorney (POA). They are becoming more proactive and providing more written guidance and protections for their senior and perhaps more vulnerable clients.
This is a good article but really addresses only the tip of the iceberg. While it states the key point that we need to prepare for an decline in cognitive ability that naturally comes with age, it does not address the issue of financial fraud for the majority of individuals. Not only do many not have any trusted financial advisors, but the majority of people don't give finanical fraud much thought. They believe it just can't happen to them.
Planning for retirement is a complex process that take time and many aspects must be considered. Making sure you can outlive savings and make any necessary changes in spending and lifestyle habits are key considerations. Some even include long-term care needs. But most plans don't include "diminished capacity." Diminished capacity or mild cognitve impairment is defined by cognitive changes that are serious enough to be noticed by the individuals experiencing them and sometimes by those who surround them but they're not severe enought to interfer with daily life or independent function. Twenty percent of those 70+ fall into this category and are the prime targets for financial fraud. In other words, this effects nearly 9 million individuals. Not all seniors will develop cognitive impairment but research demonstrates that investment skills decline sharply after age 70, and that makes one a prime target for financial fraud.
What can we do to prevent this from happening to our parents and to yourself down the road? It starts with communications. Ideally the conversations are initiated by parents, but most often this is not the case. Financial conversations are never easy. Often parents are reluctant to disclose such information to their children. In addition, family dynamics make it very different from family to family. However, I recommend parents initiate the conversation either at retirement time, or when retirement is imminent. It's a good time disclose the key stakeholders with adult children, and to facilitate introductions. These key stakeholder include not only financial professionals but legal, insurance, accounting and medical. The key is that it's done before any capability is lost. Having critical information about parents' finances will enable you to put personal safeguards in place if necessary and protect them from fraud.
Having the conversation with a parent who is mild cognitively impaired can be even more challenging. Tell them about your concerns. Don't tell them what you think they should do, but rather arm them with facts about fraud and the importance of keeping them safe. Suggest to them that they let a family member lend a hand and suggest that someone come with them to their next appointment with their accountant, attorney or financial advisor. If they are resistant provide them with a list of trusted resources, perhaps someone to help them with their bill paying, or tax preparation. Keeping parents in the drivers seat for as long as possible is crucial as long as they remain safe. We can protect our loved ones from financial fraud.
Here are some key Elder Fraud facts:
- Women 2x more likely victims than men.
- The most common ages: 80 - 89.
- 38% of financial abuse is by strangers.
- ~50% is by family, friends, neighbors & caregivers, though financial losses are greater from investment scams.
- 12% is by bankers, attorneys, & nursing home administrators.
- The vast majority of cases go unreported.
For more information on Elder financial exploitation and what is being done to prevent it, here's a link to a 2018 report from U.S. SECURITIES AND EXCHANGE COMMISSION, Office of the Investor Advocate.
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