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Financial Exploitation Of Seniors And Vulnerable Adults Continues To Be A Growing Concern

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  • Posted on: Sep 13 2017

In prior posts, this Blog has written about the financial exploitation and abuse of vulnerable adults. (Here, here and here.)

Late last month, CNBC ran a story about this growing and disturbing problem. (Here.)

Financial exploitation of the elderly and vulnerable is a common occurrence. According to the U.S. Department of Justice, financial exploitation of senior adults is one of the most frequently reported forms of elder abuse. Indeed, a recent survey from the North American Securities Administrators Association (“NASAA”) found that three in 10 state securities regulators had reported an increase in complaints from victims of financial fraud and exploitation. (Here.)

As the incidence of exploitation and abuse increase, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. (Here.) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies, estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. (Here.)

The numbers from these studies show that the financial exploitation of senior and vulnerable adults is growing, and not just with older adults experiencing cognitive decline.

“Many of the victims of financial fraud are not demented or disabled,” Patricia Boyle, professor of behavioral sciences at Rush University Medical Center in Chicago, told the International Association of Gerontology and Geriatrics conference in July. Indeed, one in 18 “cognitively intact” seniors fall victim to financial fraud and exploitation each year, according to a recent study in the American Journal of Public Health. (Here.) Researchers believe that the true prevalence of exploitation and abuse is underestimated.

Financial Exploitation of Investors

Financial exploitation occurs when individuals steal and/or misuse a vulnerable adult’s financial assets and property for their own personal gain, often without the informed celder exploitation elder exploitation and abuseand abusonsent or knowledge of their victim. According to a recent study by the New York State Office of Children and Family Services, titled “The New York State Cost of Financial Exploitation Study,” approximately five million seniors and vulnerable Americans are financially exploited each year.” (Here.)

The financial exploitation and abuse of senior and vulnerable investors (e.g., senior citizens and the disabled) takes many forms. The most common involves: churning, unauthorized trading, unsuitable investing, over-concentrating an investor’s portfolio in a single type of investment or iEndustry segment, and misrepresenting the risk or potential returns of an investment product for the purpose of generating high commissions.

Unscrupulous investment professionals (such as, stockbrokers, financial advisors and insurance brokers) often exploit the fact that many elder and disabled investors are not market savvy and financially sophisticated or are trusting of those in a position of knowledge and authority. They prey on the fact that senior and vulnerable investors are often hesitant to admit they do not understand what is being presented to them.

Regulatory Action

Last October, the Financial Industry Regulatory Authority (“FINRA”) announced that it had submitted proposed rule changes to the Securities and Exchange Commission (“SEC”) to help member firms detect and prevent the abuse and financial exploitation of senior and vulnerable adult customers. (This Blog wrote about the proposed rule changes here.)

On March 30, 2017, FINRA announced that the SEC approved the proposed rule changes. In connection with the announcement, FINRA issued Regulatory Notice 17-11, and set February 5, 2018, as the effective date for the new rules. (Here.)

The changes approved by the SEC involve two key protections for seniors and other vulnerable investors. First, member firms will be required to make reasonable efforts to obtain the name and contact information of a trusted contact person for a customer’s account. Second, member firms will be permitted to place a temporary hold on the disbursement of funds or securities when there is a reasonable belief of financial exploitation and abuse.

The NASAA Model Act

In 2016, NASAA adopted a model act that resembles FINRA’s rule. (Here.) The model act requires brokers and advisers to report instances of suspected elder abuse to state authorities, and authorizes them to delay disbursements of funds for up to 15 days if they believe their clients were being abused, conferring civil and administrative liability protections in those cases.

The model act has served as the basis of legislation or regulations in five states. Alabama and Indiana adopted laws, and Vermont promulgated a regulation, which implements the model act’s mandatory reporting requirements, immunity, and delayed disbursement provisions. Louisiana passed a law that maintains the model act’s immunity and disbursement provisions, but relaxed its reporting requirements, making them only voluntary. Texas recently passed a bill that closely tracks the model act, requiring investment professionals to report suspected exploitation and abuse and offering a 10-day hold on suspicious disbursement requests.

Some, like California, adopted the model act’s mandatory reporting requirements, while others, like Washington State, enacted more robust statutory schemes that are nearly identical to the model act.

Dozens of states have used the model act as the template for their own proposed legislation and/or regulations. Maryland, Mississippi, New Mexico, North Dakota, and Oregon, for instance, are considering legislation that imposes mandatory reporting requirements in line with the model act. At least two states, New York and Tennessee, are considering bills that would provide for voluntary reporting of suspected financial exploitation.


Financial exploitation and abuse of senior and vulnerable adults remains an all too common fact of life. Defending seniors and vulnerable adults from financial exploitation and abuse starts with trusted persons who are sensitive to facts and circumstances that are, or seem to be, out of the ordinary. Recent legislative and regulatory efforts should help. At the end of the day, however, vigilance by trusted individuals in overseeing and monitoring the property and assets of the elderly and vulnerable is the best way to help detect and stop financial exploitation and abuse before it results in financial ruin.


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