Financial Exploitation continues to grow. Anyone can be a target, though it is often aimed at seniors. Which is no surprise as older Americans have the most to lose in terms of net worth and, at the same time, their cognition declines with age. DWM and Charles Schwab have developed programs designed to reduce this abuse. One of the key elements is the establishment and use of a “Trusted Contact.”
Elder financial abuse is a multibillion dollar problem. It has become widespread and hard-to-detect. Someone you’ve never met can steal “your identity” using the telephone, internet or email. Financial neglect can occur when an older adult’s financial responsibilities such as payment of rent or a mortgage or property taxes are not made. Financial exploitation is the misuse, mismanagement, or stealing of property, belongings or assets. This includes using a senior’s assets without consent, under false pretense, or through intimidation and/or manipulation. Some of the largest abuses happen between family members or neighbors. Most victims are women, but some are men. Likely targets are older adults who have no family or friends nearby and people with disabilities, memory problems or dementia.
Financial exploitation of seniors is getting worse. There are three reasons. First, cognitive decline is a key factor. This can be brought on by disease or simply changes in the aging brain. Second, the wealth of older generations makes them prime targets. Third, the shift from pensions to defined contribution plans has placed the responsibility on the elderly to manage their retirement savings, just as their ability to do so may becoming impaired.
Today there are two segments of seniors. “Young-seniors,” like me, between the ages of 65 and 85 and “older-seniors” over the age of 85. Older-seniors are the fastest growing segment of the U.S. population, expected to be 14 million by 2040. Older seniors are also the age group most likely to suffer from cognitive impairment. Studies show that people’s financial decision making peaks at 53. At the same time, older Americans have a lot to lose. The mean net worth of older Americans between 65 and 74 was $1.2 million in 2019 and, with that group starting to spend less and their investments growing over time, their assets, which ultimately will be part of their family legacy, are expected to grow.
Total Wealth Managers, like DWM who are fiduciaries, have a legal duty to do what is in a client’s best interest. It’s our job to try to reduce the possibility of you being financially exploited. In addition, Charles Schwab, as your custodian and a member of FINRA (Financial Industry Regulatory Authority), is subject to and endorses the FINRA rules designed to reduce the “Financial Exploitation of Specified Adults.” These rules were adopted in 2016 and provide a framework for detecting and preventing financial exploitation of vulnerable adults, including requirements for registered investment advisers to carry out such protections when providing services to seniors. DWM applauds these rules and is happy to use them with and for you.
For example, FINRA’s Rule 4512 require Schwab to attempt to obtain a “trusted contact” from the client. The trusted contact may be contacted about the client’s account to address possible financial exploitation, or to confirm specifics of the client’s current contact information, health status, etc. Schwab may also place a temporary hold on disbursements from the client’s account if there is a reasonable belief that financial exploitation is occurring, has been attempted, or will be attempted.
Who is a good trusted contact candidate for you? A trusted contact can be a relative, friend, pastor, or someone you wholeheartedly trust to make a good decision on your behalf. The individual needs to be over 18 and cannot be your financial advisor like DWM. We see a lot of people choose their trusted contact to be the same person they have appointed, or plan to, as their Durable Power Of Attorney. By the way, your trusted contact person is not able to see or have access to the account number so they cannot transact any account activity or even inquire about any account activity.
At DWM, we have taken the following actions designed to reduce the possibility of financial exploitation among our clients:
- Our training programs provide information to help our team identify financial exploitation and scams and signs of diminished capacity within our clients.
- We have procedures in place in the event of suspected financial exploitation or diminished capacity.
- We are working very hard to collect trusted contact information from all clients, particularly those older clients living alone.
- We regularly review estate planning with our clients and discuss the timing and appropriateness of powers of attorney and transition to successor trustees.
- We meet with our clients regularly and try to understand any unusual distributions requested from their Schwab accounts.
- We will continue ongoing training on senior investor matters and regulatory issues.
DWM works with clients from the age of 14 to the age of 98. All of you are extremely important to us. We are committed to protecting and growing your assets and your legacy. We do recognize that seniors are particularly vulnerable to financial abuse and exploitation. We, along with Schwab’s help, will do our best to protect you from financial exploitation. An important piece of that protection is having you designate a “trusted contact” and for us to be able to connect with that person on your behalf if we feel that an exploitation may be in process. Thanks for your cooperation.