Fraud can be devastating for your client, but advisory skill can mitigate the effects.
Arthur Fish, a partner at Borden Ladner Gervais in Toronto, offered tips for advisors with at-risk clients when he spoke Tuesday in Toronto at the Independent Financial Brokers of Canada’s fall summit.
According to research commissioned by the Canadian Securities Administrators, about 20% of Canadians say they’ve been approached with a fraudulent investment opportunity. Older Canadians are particularly vulnerable to such offers. Those 65 and older are the age group most likely to say they’ve put money in a fraudulent investment.
There is a “developed and sophisticated industry” focused on taking money, especially from seniors, Fish said at the summit, referring to third-party fraud and cyber crime.
The industry relies on data harvesting. Fish gave the example of receiving a phone call ostensibly from an “institute for policy,” asking if the household included seniors. They’re looking for contacts, and will sell the data, Fish said.
For those who experience third-party fraud, a vicious cycle can begin. “The single best predictor that someone’s going to fall victim to third-party crime is that they’ve already been victimized,” Fish said.
Victims of an investment scam could be contacted a second time requesting a transaction fee before the fake profits can be distributed. Victims’ contact information can also be sold to other fraudsters. “Once you’ve been victimized, you’re permanently marked as a target,” Fish said.
As a result, “One of the best and most helpful things we can do is ask people whether they’ve been victimized,” he said.
He also urged advisors to “check any impulse to scoff” at those who are scammed. “In the right circumstances, it could be all of us,” because fraud feeds off our trust and uses elements of plausibility gleaned from data harvesting, he said.
Advisor action steps
In addition to explicitly asking clients whether they’ve been fraud victims, advisors can address fraud through their practices.
For example, advisors can meet alone with their clients, face-to-face, and regularly contact them as a way of establishing a baseline for client behaviour. Behaviour outside the baseline is what tells you something’s wrong, Fish said.
He also suggested advisors take a broad approach to know-your-client processes, asking clients about their lives instead of checking off boxes.
Showing a personal interest in clients leads to deeper conversations, such as discussing what the advisor should do if the client is sick and can’t give instructions. When advisors are respectful and build relationships over time, clients welcome such conversations, Fish said.
Advisors can also be attentive to situations that typically increase vulnerability, such as when a client’s spouse dies, or the client is forced to move or experiences cognitive decline.
Other warning signs are unexplained withdrawals, an inability to pay regular bills or necessities, and the negative influence of new friends. Where suspicion arises, advisors were encouraged to ask probing questions.
For example, when a client can’t pay their bills, the advisor can ask why the financial plan isn’t working, and suggest a reassessment. That way, the advisor is helpful, not accusatory, Fish said.
Discussing potential warning signs will typically either clear up misunderstandings or increase confusion. In the latter case, potential fraud is reasonably indicated and warrants more investigation — beyond what the advisor can provide alone.
That’s where trusted contact persons (TCPs) and powers of attorney (PoAs) for property come in. To be able to act once signs of trouble are spotted, advisors must have encouraged clients to name TCPs and PoAs, Fish said.
His other tips to avoid fraud included educating clients by talking to them about common scams, using password-protection software, and refraining from giving data to ancestry websites and disclosing family status on social media (e.g., using “Nona Nina” as a screen name).
Advisors can also suggest to their clients that they have conversations with their elderly parents about fraud. This could include a discussion about how requests for money wouldn’t also include a request for secrecy. Families could also establish a safe word (not based on family names) to use when not communicating face-to-face.
Advisors must also guard against inadvertently triggering financial abuse when discussing probate fees.
“Probate fees are a boon to criminals,” Fish said, because, to avoid the fees, clients can be persuaded into joint ownership or gifting of assets.
As such, discussions about avoiding probate fees must be done with sensitivity, and family members might have to be explicitly told that probate fees aren’t an excuse to take over the client’s assets, he said.