Trust betrayed

(Defendants in both cases have denied the allegations vigorously.)

These cases are remarkable only in their celebrity and, while they’ve taken place in the U.S., they point to a troubling trend occurring throughout Canada as well. Elderly parents are vulnerable to opportunistic adult children – and others – who are anxious to get their hands on the parents’ assets. It’s a toxic situation that may be becoming commonplace, and financial advisors can find themselves in a difficult position with few clear guidelines or tools for protecting an elderly client.

Roy Vokes, a financial planner and branch manager with Worldsource Financial Management Inc. in Kleinburg, Ont., has seen a variety of such situations over several decades in the business. Protecting clients from predatory relatives never gets easier, he says. A recent scenario in Vokes’s practice (with some of the details altered to protect identities) tells the tale.

For more than a decade, the widow of a successful entrepreneur gradually became a “bank” for her unemployed adult son. The mother, whom Vokes describes as “way too generous,” allowed her son to erode funds set aside for her under the terms of the entrepreneur’s estate – and, later, funds in her RRIF, as well. The money was used by the son for expensive non-essentials, even though the son had been well provided for by his father. Once accessed, the widow’s large RRIF was depleted rapidly by almost 80% due to her son’s lavish spending.

In the context of the family’s overall wealth, “it was not a devastating loss,” Vokes says. “But I had a duty to take steps to reduce the burn rate.”

Preying on affluent seniors is nothing new, but there are indications that the problem may be escalating. Although there are no firm Canadian data on the issue, regulators and investment industry groups point to a demographic shift in Canada that has created more seniors than children for the first time since Confederation.

The 2016 census reveals that there are 5.9 million adults over the age 65 and 5.8 million children under the age of 14. At the same time, the prevalence of inaccessible pools of retirement savings, such as defined-benefit pension plans, have declined, making life savings easier to unlock.

The bulge in real estate values also is enriching seniors, who often sell their valuable homes to help fund retirement.

Unfortunately, these pots of money frequently attract inappropriate attention from adult children, colleagues and caregivers, many of whom may be battling debt or unemployment. In the hunt for cash to fund their homes, cars and vacations, some adult children may view Mom’s and Dad’s savings with a sense of entitlement. The U.S. Financial Industry Regulatory Authority even noted that the opioid crisis in the U.S. is driving some addicts to raid their parents’ savings.

According to some estimates, about 50% of elder financial abuse cases are perpetrated by family members or others known to the senior. And such conduct clearly crosses social class boundaries and income levels.

Canadian regulators and industry groups recently took steps to address the problem: the Ontario Securities Commission stated this past spring that it will produce a response to the issue later this year, and detailed requirements about the steps dealer firms should be taking to address the issue are likely to be included. (See “Clients and mental capacity” in the April issue of Investment Executive.)

In late June, the Investment Funds Institute of Canada (IFIC) launched a section of its website called the Vulnerable Investors Resource Centre. This resource offers information to help advisors deal with clients who may be subject to elder financial abuse. And New Brunswick’s Financial and Consumer Services Commission released comprehensive recommendations earlier this year aimed at improving protection for senior clients.

Those recommendations, which arise from a report entitled Improving Detection, Prevention and Response to Senior Financial Abuse in New Brunswick, include proposals for granting dealer firms the power to place temporary holds on transactions “when they have reason to believe that financial exploitation, abuse or fraud has occurred, is occurring or will occur.”

Still, although many in the financial services sector applaud such initiatives, they agree there’s a problematic gap that can be particularly troubling for advisors who have identified a vulnerable client: lack of step-by-step practical support. Too often, advisors face inadequate answers from their firms and from regulators – such as vague principles, heavy-handed directives to contact their firm’s legal department and, in some cases, no guidance at all.

Yet, firms have overwhelmingly expressed a desire for change, according to a report on vulnerable seniors that the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) and the Canadian Centre for Elder Law co-published in November 2017.

Notes Marian Passmore, chief operating officer and director of policy at FAIR Canada and a co-author of the report: “The knowledge and policies and procedures to address this issue are not very robust. Firms want to move to the next level.”

IFIC’s new resource centre offers informative videos on issues such as mental capacity, along with other resources such as strategies for investigatory conversations and the role of influencers. This material was partly developed by CARP (formerly known as the Canadian Association of Retired Persons).

In addition, IFIC strongly supports adopting a so-called “legal safe harbour” to provide some protection for advisors who take action to shelter their senior clients from financial predators. Such a regulatory measure, which has the broad support of regulators, would provide some protection from allegations that a client’s privacy has been violated in the course of investigating potential abuse.

Minal Upadhyaya, general counsel and chairwoman of IFIC’s vulnerable investors’ task force, says IFIC plans to “work closely” with regulators to ensure that a legal safe harbour measure is adopted eventually by securities regulators.

FAIR Canada also supports the creation of a safe harbour rule, as well as the power to place temporary holds on client transactions when financial abuse is suspected. The group has called for mandatory reporting in such cases.

“If there is a hold placed on the individual’s funds, then there should be mandatory reporting,” Passmore says. “But we don’t believe in mandatory reporting in all cases” – such as when an advisor notifies the trusted contact person attached to the account. “We want the individual [advisor] to have the discretion at the beginning to take preliminary steps.”

What also is needed, Passmore says, is more training and education for advisors and their firms so that there is a better understanding in the sector of elder abuse and how financial abuse is a part of that problem.

But whatever new regulatory action is taken must have some muscle behind it, Passmore says: “Until you make it a requirement, you’re not going to get any take-up.”

Vokes, for his part, took a multi-step approach that emphasized a firm but polite approach with his elderly client, her family and other professional advisors.

The first step was to speak with the client on her own. “I asked some pointed questions,” Vokes says, “such as who was controlling her bank accounts, whether she felt in control and whether she was being kept informed.”

He then approached the woman’s son and asked more questions, in person and by email.

After gradually piecing together the financial picture (with little co-operation from the son), Vokes’ next challenge was to get everyone in the same room to ensure that the message to reduce spending was heard – and understood.

The process, which Vokes says he “documented the heck out of,” included reviewing bank statements and, perhaps most important, getting family members to set up and agree to budgets. The client, who was not experiencing cognitive decline, agreed readily. The co-operation of the son proved more elusive, but eventually was secured. Vokes brought the family’s accountants into the meeting, and included input from lawyers by email and phone.

Staying on top of possible financial abuse issues regarding elderly clients “requires an interest in your client’s financial affairs and well-being,” Vokes says. “That’s how you can discover where the weaknesses are. You have to be a little bit of a forensic accountant at times to see where the money is going. Financial drains can be hidden for a long time.”