This is the first in a two-part series on protecting your senior clients. This column focuses on identifying fraudsters who may want to take advantage of your senior clients; the next column, which will be published on April 11, will explore the issues associated with fraud stemming from senior clients' family and friends.
Protecting seniors from fraud is easier said than done, and regulators are counting on advisors to be the first line of defence against fraudsters, many of whom may be lurking around, waiting to physically pounce on an unsuspecting senior. Sadly, this happens more frequently than you might expect.
That's because fraudsters identify, through obituaries and other sources, and move in on widows or widowers who are especially vulnerable from their recent loss. These strangers can be very manipulative and gain the confidence of these vulnerable seniors quickly. Next thing you know, the senior is calling the advisor seeking unusually larger redemptions, which is a red flag for the advisor.
Before executing on the redemption, you will need to have a serious talk with the senior to determine why she or he is seeking to redeem the investments. The senior may offer excuses such as funeral costs, which may sound reasonable; but if the redemption is far in excess of what you would expect to be the cost of a funeral, then further probing is necessary.
The senior may refuse to answer your questions, being coached by the fraudster to say "it's not any of your business". The senior may also refuse to talk or meet with you or might send the fraudster to talk or meet with you in order to address the issue of the redemption. You should try to get to the heart of the reason for the redemptions and what the client is planning to do with the proceeds. If the client provides the name of the stranger to you, then you should search his or her name on the Internet. You would be surprised what can be discovered from an Internet search.
In a case I was working on, an Internet search revealed that the fraudster had committed other frauds, was a party to failed business deals and had creditors on his doorstep. It became obvious that the fraudster was going to use the unsuspecting senior's money to satisfy his creditors. If we had not identified this fraud and the dealer had redeemed the money without asking any questions, the elderly client would have likely launched a lawsuit seeking judgement against the advisor and dealer. So, we dodged that bullet.
If the circumstances are suspicious, you need to escalate the situation to compliance. Don't make decisions about how to handle the problem yourself. If you decide to deny the senior his or her money, this could lead to big problems as well as lawsuits; so, make sure all decisions about how to handle the situation are discussed and blessed by compliance. You should keep a paper trail, presumably by email, to ensure directives from compliance are clear and you have executed them properly.
Of course, it's always easier to protect seniors from fraud if they are aware of their vulnerability and that they could be targeted. Thus, educating senior clients is key so they can identify these threats on their own and ward off the fraudster.
Another source of fraud that seniors should be aware of is strangers who telephone seniors pretending to be the client's bank or investment firm, seeking passwords and other details that would permit the fraudsters to perpetrate the fraud. They could gain the confidence of the senior by citing the senior's banking information obtained from letters thrown in the garbage that were not shredded.
For example, I know of a very bright 90-year-old woman who received such a call but didn't provide any information because her bank had educated her in advance that it would never call her asking for this type of information over the telephone — and if she received such a call, she should not give any information, get off the phone and call the bank's toll free number. She did exactly that.
Of course, fraudsters can be very sophisticated. They can access seniors' emails illegally by hacking the accounts and instruct advisors to execute certain instructions. As advisors are not permitted to take instructions by email, this will protect the advisor from executing without first checking with the client by telephone. Many advisors are frustrated that they are not permitted to take instructions by email, but this is one of the good reasons why this rule exists.
Senior clients rely on their advisors for protection. So, be sure that you are thinking about fraud as a possibility when a senior client approaches you with unusual instructions, particularly if these include significant redemptions. Fraudsters could be lurking and you want to ward them off. After all, you are on the front line of defence.