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Elder Protection May Offer Advisors A Chance To Shine: TowerGroup

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Pressure from regulators and legislatures to protect the nest eggs of elderly investors from unscrupulous advisors could be a chance for financial service firms to separate themselves from the pack, a consulting firm says.

The threat of financial fraud targeting older Americans is rising because this fast-growing demographic segment has a lopsided share of the nation’s investable assets, TowerGroup Inc., Needham, Mass., points out in a new study.

With 10,000 Americans turning age 60 every 24 hours, state and federal officials are beginning to demand that financial institutions take special steps to protect these customers, the company says

Deception and fraud against seniors can result in the permanent loss of the victim’s financial independence, because people at or near retirement have no way to rebuild their savings, TowerGroup notes.

It observes that 17 states mandate that employees of financial service firms report suspected financial abuse of clients. California, for instance, subjects such employees to penalties of up to $5,000 for failing to report fraud.

Leading sources of elder financial abuse include misappropriation of assets such as savings or credit cards; excessive charges for services; and use of manipulation or intimidation to cause a victim to sign over assets or income, says TowerGroup, citing examples from the California Bankers Association.

Dodgy practices also include selling nonexistent investments such as fictional certificates of deposit to older investors and luring elderly victims into so-called free-lunch seminars where they are pressured into making dubious investments, TowerGroup says, referring to recent cases investigated by the Securities and Exchange Commission.

The potential for abuse gives financial companies a chance to win the business of aging investors by earning a higher level of trust, says Rodney Nelsestuen, senior analyst with TowerGroup and author of the report, “Elder Abuse Regulations: Reporting Burden or New Opportunities for Financial Services?”

A financial company that want to gain an advantage in the senior market can use 3 tactics, says Nelsestuen:

Position itself with older adults as a firm that offers exceptional protections and help in managing and growing their assets.

Use antifraud technology to assure compliance with regulations protecting seniors and to detect fraud against them.

Expand existing training and educational tools to expand the professional expertise of employees selling to seniors.

Rather than view new laws and rules designed to protect elderly customers as yet another regulatory burden, an institution can position itself as a marketplace leader with older adults by providing superior protection as well as managing and growing their financial assets, Nelsestuen says.

The institution can provide this higher level of service quality without significant additional investment by making effective use of its existing anti-fraud and other compliance technologies, he adds.

For example, existing technology can be used to track the investment activity of older investors for signs of inappropriate investment patterns.

Stopping exploitation also requires continuing training of employees throughout the institution, he says, to add expertise in preventing fraud, he says.

This new approach can then be woven into financial service institutions’ (FSIs) marketing approach to include educating customers on how to protect themselves against fraud.

“FSIs can also extend that education to cover products such as reverse mortgages and long term care insurance and can educate aging customers on the necessity to adjust their investment strategies to match their changing risk profiles,” Nelsestuen states.

“As competition to provide services for the assets and revenue of older citizens heats up, an FSI can, with small but focused effort, differentiate itself in the marketplace as a trusted provider to this market segment,” he concludes “Developing the expertise needed to recognize financial elder abuse and training personnel is the first step.”


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