15 best practices to protect clients from elder financial fraud

Mierswa: The training is important. We also put together a website so reps can consult the information there. We have both internal resources and external resources. We also have periodic meetings, where the training is constant. It’s very important to do that. We don’t expect employees to be experts in diseases that diminish the mind. If you sense something going on, bring it up to your risk manager or compliance. Work with someone to get the client assistance.

Here are some real life examples:

Scenario No. 1:

• Senior client tells her FA that she received an email advising her she had won $250,000 in a lottery and that she needs to wire $25,000 to a bank in the Cayman Islands to claim her prize. Client forwards the email to the FA.

• FA advises the client that it is a scam, and the client does not wire funds out of her brokerage account. FA makes a day-timer note but does not alert management.

• Two months later, the client requests a wire for $50,000 to her personal bank account.

• FA questions the client on the reason she needs the funds. The client makes the FA promise to keep her information confidential and discloses that she has been receiving threatening phone calls because she has not wired the funds to the Caymans. 

Mierswa: Internet scams. Our clients are getting pummeled with this. This is a real situation. This is typical — every DAY we get something like this. 

Cox: The problem is blindness of us. Unless it’s a large number, we don’t typically notice it. It’s usually at the end of the line, when a large sum is taken out [that we notice something not right]. It’s difficult.

Scenario No. 2:

• A senior client has been with the firm for several years and was widowed three years ago, comes into the branch and requests $75,000.

• The client is evasive when the FA inquires about what the funds are for, but states she needs to lend a friend some money.

• The FA presses the client for additional information. The client finally discloses that she has a “friend” who needs the money to obtain an inheritance from his deceased wife’s family wealth in a foreign country.

Johnson: She came in and wanted $75,000. She said money was going to a friend who received an inheritance from his Malaysian wife. Finally, the advisor refused to do the transaction for her. And the branch manager refused to do the transaction, which was risky. You risk losing a client over it.

She went to her other firm to get the money. She took out a line of credit, loan against her car and cashed in an annuity. The friend she had, she met online on a dating website. She believed he was in New Jersey. She sent the money out to a bank and it went to Southeast Asia. Once the money leaves the U.S. it’s almost impossible to get it back. We called law enforcement and Secret Service on this. She also reported it to the FBI. All those efforts are good but they’re not going to get her money back.

Scenario No. 3:

• Senior client appears confused to her FA and has significant memory issues. She has revoked her POA held by her older son and given a POA to her younger son who has a criminal record and may be taking advantage of her. 

• Older son retains counsel to initiate a guardianship proceeding, but nothing has happened for six months.

• Client initiates an ACATS transfer to a competitor. Branch freezes the account because of concerns about the younger son’s new role in his mother’s life. In the last two days, client has repeatedly called the branch with younger son in background demanding that the assets be allowed to leave.

Mierswa: We were able to get APS involved and we were working with the older son’s lawyer. We were spending more time than expected for a small, $200,000 account, but it was the right thing to do. 

Best practices:

1. Develop deep relationships with clients. Move beyond liquid net worth and net worth profiling-types of questions. Learn about their short and long-term goals, likes, dislikes, dreams, aspirations, financial expectations, as well as their family dynamics.

2. Develop a plan (investment policy statement). Write it down. Revisit that plan each year and adjust as necessary. Never let there be a question about goals and objectives. Make sure the plan is clearly communicated. 

3. Make sure you have a clear picture of a client’s assets including other investment accounts, banking relationships, mortgage relationships, lines of credit, real estate, non-traditional investments, precious metals, investment art and jewelry, etc.

4. Ask your clients about existing POAs, trusts, wills, health directives and trading authorizations.

5. Have the conversation with your client(s) about the forms of ownership and have them speak with their attorney or tax professional about how different types of asset ownership will benefit their particular needs.

6. Form relationships within the firm and the community that may help your clients achieve their goals. Example: estate planning and elder law attorneys, CPAs, professional fiduciaries, county agencies for the aging, care giving organizations, assisted living facilities, long-term care organizations.

7. Ask your client to provide a third party contact in the event of emergency. Let your client know the limited purpose of this contact and that it can be revoked at any time. 

8. Ask your client if they would like to invite a trusted friend or family member to the meetings.

9. Be forthcoming about suitability and do not be afraid to tell the client that an investment may not be suitable based on what they have told you.

10. Always base your recommendations on the most current financial information.

11. Have a conversation with your client about current events, family and friends, in addition to their needs and objectives.

12. Plan to spend extra time with your client ensuring that they have a complete understanding of your recommendations, strategy and the specific investment.

13. Document each and every interaction with your client.

14. Follow up with your client in writing and recap your conversation.

15. Provide your client with a binder so that they can keep important documentation and correspondence in one place. 

Cox: A lot of time, it’s financial advising 101: get to know your client.