Protect senior clients from their loved ones

Specifically, this could be a close friend or family member who checks in on the senior regularly; or someone upon whom the senior might be completely dependent. The senior might even live with the close friend or relative, which makes the situation even more complicated because even if the senior is aware of the fraud, the senior may not be inclined to accuse the wrongdoer for fear of losing the only person who is prepared to care for the senior.

Caring for a senior, especially one whose health is failing, can be a big job and, therefore, there may not be many volunteers. Furthermore, those who take on the responsibility may feel they are entitled and easily rationalize any fraud — “They owe it to me.” However, it’s the advisor’s responsibility to be wary of those close to the client to ensure there’s no fraud being committed.

Here’s an example: Mrs. Sarnicky, 78, has just sold her house and moved in with her daughter Ethel and her son-in-law Jock. Ethel has the power of attorney for her mother’s assets and instructs you to redeem her mother’s investments and transfer $235,000 to her mother’s bank account. You ask Ethel why and she says her mother wants the money to pay down Ethel and Jock’s mortgage. There will be $140,000 left in Mrs. Sarnicky’s account for her to live off for the rest of her life. Ethel says her mom will not need more than that as she will be living with Ethel and Jock in their house and they will care for her. Ethel says that Mrs. Sarnicky is so grateful that she wants to give them a meaningful gift.

If Mrs. Sarnicky is of sound mind, then you need to call her and have a discussion about this transaction. Ask her whether this is what she told her daughter to do; and, if so, explain the risk of not having enough money for her own care for the balance of her life if something either happens to Ethel, such that she cannot take care of her mother, or if she and Jock change their minds. Furthermore, as you know this client has more than one child, what will be left for the other children and will that result in issues between the siblings after her death? Mrs. Sarnicky should understand the risks and instruct you to make this transaction herself if she is of sound mind. There will be tax implications that also need to be explained to Mrs. Sarnicky.

Of course, this request might be a complete surprise to Mrs. Sarnicky, but having moved in with Ethel already, she may feel she has no choice. This, of course, is a huge problem — and a bad combination of fraud with the potential to turn into elder abuse/neglect if Mrs. Sarnicky was unaware that Ethel went behind her back in an effort to transfer the proceeds. Regardless of whether Mrs. Sarnicky instructed her daughter or knew nothing about this transaction, if the transfer is to be made in accordance with client instructions, compliance must direct the advisor on next steps and ensure the file is properly papered.

However, if Mrs. Sarnicky does not have the mental capacity to instruct you, then you will need to involve compliance, legal, or both on the next steps. For such a large sum of money to be transferred without client instructions and without client capacity to instruct, you cannot allow the transfer without a court order. Compliance/legal may assume responsibility for communicating this to Ethel or they may have you stick handle it. You should keep a paper trail, presumably by email, to ensure directives from compliance are clear and properly executed. Any letters or emails to the client’s daughter should be reviewed by compliance/legal before sending.

Always be suspicious of family and friends and don’t hesitate to escalate the matter to compliance. If the circumstances are of concern, don’t make decisions about how to handle the problem yourself. There are risks on both sides of the equation, allowing or disallowing the transaction, and compliance/legal needs to make that determination to protect the senior as well as the advisor and the dealer from litigation commenced by beneficiaries who claim that the transaction was not reasonable or intended by the senior and should not have been permitted by the dealer.

It’s always easier to protect seniors from fraud if they’re aware of their vulnerability and that they could be targeted, so educating senior clients is key so they can identify it on their own and ward off the fraudster.

Although it goes against what’s usually expected, you need to ensure you consider the possibility of fraud when a senior client’s friend or family member approaches you with unusual instructions, particularly if these include significant redemptions. This is critical in the process of protecting your senior clients.