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Brokerage Firm's Responsibility to Detect & Prevent

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What Is the Brokerage Firm’s Role in Detecting and Preventing Financial Abuse of Seniors?​

As our population continues to grow older, the financial abuse of senior customers at brokerage firms has become a critical issue. Brokerage firms have an affirmative duty to monitor senior customers’ accounts to detect and prevent potential financial abuse. If a brokerage firm fails to develop, implement, and maintain reasonable policies and procedures to detect and prevent  financial abuse of senior customers, then the brokerage firm should be held legally responsible and required to pay for the losses that the senior customer has suffered.

Types of Elder Financial Abuse and Fraud

Elder financial abuse comes in many forms. Oftentimes it involves a loved one or caregiver taking advantage of a senior customer. Sometimes it’s perpetuated by a third party who inserts themselves into the customer’s life and begins taking control over the senior’s financial affairs. In other instances, it may even be the financial advisor who is engaging in misconduct. The motive in these cases is always the same – rob the senior investor their hard earned savings.

For many years now, both regulators and investor advocates have been warning brokerage firms about the need to take on the issue of financial abuse head on. In 2012, The U.S. Government Accounting Office called senior financial abuse “an epidemic.” 

When dealing with senior investors, brokerage firms must be on the lookout for well-known red flags indicating potential financial abuse. These include the unexplained withdrawal of large sums of money; writing checks to cash, taking loans, giving large gifts, or entering into other uncharacteristic financial transactions. Other signs can include not paying routine bills or expenses; and changing power of attorney or beneficiaries on insurance or investment accounts.

Who is at Risk of Elder Financial Abuse?

Seniors who are isolated, suffering bereavement from the loss of a loved one, and those suffering from diminished capacity are often more vulnerable to various forms of financial abuse. Fraudsters will often pressure their victims to make withdraws or transfer money from their traditional investment accounts. 

When a financial advisor becomes suspicious that elder financial abuse is occurring, the brokerage firm must immediately take steps to protect the customer, including putting temporary holds on the accounts, talking in detail with the customer, and reporting the suspected abuse to the appropriate local authorities. Brokerage firms may be held accountable for ignoring or perpetuating elder financial abuses. 

Steps to Help Prevent Financial Elder Abuse

Millions of people are victims of senior financial exploitation every year, but that doesn’t mean you can’t help prevent and identify potential abuse. According to FINRA, here are a few ways you can help ensure this type of fraud and abuse doesn’t happen: 

  • For Seniors / Family Members - Ensure that a trusted contact is on the account. This can help brokers confirm information that may be needed to identify, prevent, or stop exploitation of the account.
  • For Brokers - Place a hold on the account if exploitation is suspected. Today, brokers can place holds on accounts they suspect may be subject to elder financial abuse or fraud, which gives them time to gather evidence to confirm whether or not abuse is happening.

If you or someone you care about has lost money as a result of the financial abuse of a senior investor, please give us a call today for a complementary case evaluation.

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