Morgan Stanley
  • Wealth Management
  • Jun 13, 2023

Protecting Elders From Financial Abuse

Financial abuse of older citizens is one of the most common crimes in the U.S. But there are ways to protect you or your loved ones from scams like these.

Financial abuse of elderly citizens is one of the most common, yet under-reported, crimes in the United States. While many older adults have the mental acuity to protect their assets, the combination of cognitive decline and financial wealth make some other seniors easy prey for financial crime.

In 2022, there were more than 88,000 victims of elder fraud who lost an average of $35,000 each. The total amount of losses for the year was $3.1 billion, an 84% increase from 2021.1 Worse, true losses may be difficult to calculate since many incidents go unrecognized or unreported.

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The best prevention for you and your older loved ones is being aware of forms of financial abuse and knowing what preventive steps you can take. 

A Wide Variety of Crimes

With elder financial abuse, fraudsters exploit certain vulnerabilities of the elderly, including cognitive impairment and lack of familiarity with technology, to collect their personal and financial information to perpetrate fraud. Financial abuse against the elderly covers many types of fraud such as unauthorized use of a senior’s property, mismanagement of their income for a personal benefit or persuading a senior to sign a fraudulent document.

Other scams include deceitful investment offers, rip-offs by contractors, romance scams, impersonation scams, and intentional bad advice from disreputable advisors.

While every case of abuse will be different, there are typical red flags for the various types of scams. For example, since many seniors are dependent on others, often the abuser is someone close to him or her. Deceitful family members and caregivers are in a good position to access the victim's assets illegally without being noticed. They may also coerce, deceive, or psychologically manipulate the victim under the guise of being helpful.

The best prevention for you and your older loved ones is being aware of forms of financial abuse and knowing what preventive steps you can take.

“A lot of times the person who's committing the fraud is a natural object of the senior person's generosity,'' says Thomas Mierswa, Executive Director in Morgan Stanley’s Legal and Compliance Division. “It is often difficult to determine that a fraud has taken place.''

Cases like these can be challenging to address because investigators must deal with a relationship in which the victim is emotionally attached to the offender. In many instances, the victim chooses not to report the fraud.

Confidence Scams Against Seniors

Elderly people can also be duped into new romantic or platonic relationships with unscrupulous people who seek to obtain money. In 2021, these types of scams resulted in over $1.7 billion in losses to adults over 60 years of age.2 According to Mierswa, seniors who live alone are particularly exposed, especially those who frequent social media, as they may come to place excessive trust in their new companion, who typically is exclusively virtual. This vulnerability from loneliness, though, also arises often when a senior’s primary contact with the outside world is through their home caregiver.

Internet access has fueled senior financial fraud. Seniors who aren’t savvy with e-mails can fall prey to notifications of overseas lottery wins, unexpected inheritances from abroad, or even “ransom requests” about allegedly kidnapped younger relatives, who often are away on a college semester abroad program. 

Trusted family and friends are the first line of defense for detecting elder financial abuse.

First Line of Defense for Elder Financial Abuse

Trusted family and friends are the first line of defense for detecting elder financial abuse. It is important for senior clients to prepare and include individuals they trust in their financial affairs. Discuss with your loved ones being named as a Trusted Contact on their accounts and coordinate with them so you can regularly check their account statements and access information online to review any transactions.

Because many crimes are carried out through wire transfers, withdrawals and electronic payments, cash management personnel can act as front-line watchdogs in exploitation cases. A major step to combating senior financial abuse is being aware of the flow of money. This is where the relationship between account holder and Financial Advisor and his or her team becomes key.

Morgan Stanley staff can help family members with the difficult task of detecting warning signs that could point to exploitation such as abrupt changes in a will, the sudden appearance of previously uninvolved “relatives” or “friends”, or unusual account activity. A senior client breaking his or her habits of withdrawals and transfers can raise suspicion.

“We don’t expect our Financial Advisors to be doctors, but they are trained to monitor what is going on with their clients' behavior and activity,'' says Rocco Procopio, Head of Field Compliance at Morgan Stanley. We do not expect our Financial Advisors to formally diagnose client behaviors, they are trained to identify red flags or unusual activity in a client accounts. 

At Morgan Stanley, a Financial Advisor can raise a suspicious situation to Risk, Compliance, or Fraud Operations and ultimately to the Legal Department. When a case is determined to constitute a deceptive or abusive act, Risk and Legal will act to stop the financially exploitative activity and try to protect the client's assets. When appropriate, Adult Protective Services may be alerted and the matter may be reported to law enforcement.

Designating a Trusted Contact to Prevent Abuse

Another step to help prevent elder abuse is for a client to add a Trusted Contact to their account. A Trusted Contact is a person appointed by a client who serves as a point of contact in case a concern arises about the client’s health status, financial activities or wellbeing. Note that, unlike an agent with a power of attorney, a Trusted Contact has no authority to take any action on an account. In 2022, FINRA included Trusted Contacts as an item in their Report on FINRA’s Examination and Risk Monitoring Program emphasizing the importance our regulators place on having a Trusted Contact in place.3

Elder financial abuse can impact financial security, fracture families and lead to a potential loss of trust. It is up to friends, relatives, and professionals to stop this scourge. The best prevention may lie in being familiar with the habits of potential victims and taking action when suspicious activity occurs.

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