Clients often work with their advisor for a lifetime, patiently amassing millions in wealth.
But in their old age, they
The FINRA Investor Education Foundation partnered with the Rush University Medical Center on a
Much is at stake when it comes to elder fraud. Besides billions of dollars being on the line, families' generational wealth and financial security are jeopardized, and their advisors' livelihood, often a function of clients' net worth, could also be negatively impacted. Research by AARP this summer found that victims aged 60 or older
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The FINRA study involved a behavioral experiment in which a scammer, acting like a real-world con artist, contacted seniors. Posing as a fictitious government agency worker, the study's scammer claimed that their retirement benefit account might have been breached. The scammer mailed letters, sent emails and placed phone calls, and attempted to extract personal information out of the seniors. Most of the participants, around 69%, did not engage, and another 15% engaged but were skeptical. Yet 16% "engaged without skepticism" with the scammer. Twelve percent willingly shared personal information, and 5% even divulged the last four digits of their Social Security number.
"If extrapolated to a population level, these numbers are astounding and suggest that a very large number of older adults are at risk of victimization, far exceeding findings previously observed in survey data," the researchers wrote in the report, adding that the problem is likely even worse than their data suggested, since real fraudsters can make more compelling scams, put more pressure on the listener and likely impersonate real government agencies.
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In addition, most participants were white and highly educated, the report said — meaning if the participant sample had been more representative of older Americans as a whole, the risk of being scammed would have been even higher. The
While the existing research on elder fraud has been limited to self-reported data, the study authors said that they believed their work is the first of its kind to use a real-world behavioral experiment to measure for fraud vulnerabilities among elders. The problems with self-reporting are many, the authors said. "Older adults may be unaware that they were victimized, may have forgotten the incident, or may be unwilling to acknowledge victimization due to shame or concerns that it adversely reflects on their intelligence … and, consequently, could compromise their independence."
What advisors have seen, and how to help
Christopher T. Rand, a certified financial planner and the managing partner and personal CFO at
One client's mother, an 85-year-old widow living alone and far from her children, was told by a fraudster that she had won millions in a sweepstakes but had to pay tax upfront to claim the prize. "Unfortunately, she sent large sums of cash and checks to the fraudster with the majority not having been returned," said Rand, quoting from his PhD dissertation on this general topic, which he said was partly inspired by that client story.
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Similarly,
The woman was 63 years old, with signs of "moderate psychological behavior," but still employed full-time, making $80,000 in a tech job. "She was over a 30-year client, whom we had started with almost nothing," so it was "very painful" to see her behavior, said Demming, a CFP who is the founder and president of Demming Financial Services, an RIA based in Aurora, Ohio.
His firm tried to warn the woman and keep her from taking out the funds, he said, but the client refused to discuss or stop her behavior, putting in multiple requests for funds. Ultimately, Demming said, his staff decided to terminate the client relationship and warned the custodian's compliance department, which followed suit.
"We take care to protect our clients. One way is to require dialogue with them prior to any distributions," said Demming. His firm has retained the client's sister.
Gary Mottola, research director of the FINRA Foundation, said the study suggested that older adults with lower cognition and financial literacy are especially vulnerable, and such clients warrant more attention from advisors for possible fraud.
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"Since financial literacy may help protect older clients against financial fraud, providing resources and tools that help older adults be informed about their financial decisions may also be important," he said.
The study engaged 644 Americans, who were 86 years old on average, from Oct. 2021 to Dec. 2021. Some 78% were female, and 92% were white. Participants had a median household income between $50,000 and $75,000 and were found through the Rush Memory and Aging Project (MAP), a long-term cohort study on aging, which recruits participants from the greater Chicago area. After the experiment, participants were given a debrief to discuss the study and a presentation by the FINRA Investor Education Foundation on financial fraud.
