What Financial Advisors Should Know About You And Aging Parents

Those properly licensed people who help us manage wealth may not be fully informed about financial elder abuse. In exploring what their organizations do in this area, we have observed little training or inadequate training. ThinkAdvisor reports on a case involving a “court fight over a recently deceased grandmother’s $5 million IRA”, which, it states, “illustrates the need for advisors to be aware of potential financial manipulation and other elder abuse.”

Yes, being aware of such abuse is one thing. Knowing how to address it is quite another matter. The author of that article comments that it is hard to spot the red flags. We do not agree here at AgingParents.com and AgingAdvisor.com, where we advise families about how to solve problems with their aging loved ones. We created a red flag checklist for both spotting warning signs of diminished capacity and one for the warning signs of financial abuse. One needs to be aware of how abusers typically operate, even in families, and what action to take when you suspect abuse.

“Solutions” That Are Too Vague To Work

In the above story, the author suggests that older clients need a financial power of attorney. Right. But there is no detail about what to do when the appointed agent on that document is actually the abuser. Normally, a power of attorney document can be revoked at any time. No courts are involved. One doesn’t even need a lawyer, as the form is generally available on the internet. Someone exerting what we call “undue influence” over a vulnerable person may get the elder to change a long-standing appointment to a trusted person and change it to give full authority to the abuser. The thief destroys the prior appointment, gets a notarized signature from the elder and that’s it. The elder may not be aware of the abuse and can be easily manipulated due to diminished cognition.

Protect Yourself With An Important Step

For anyone who has a financial advisor, bear in mind that they are not required to have a trusted contact on record for you nor your aging parent. It is a suggestion from their regulators that they “try” to do so. If the client declines that request, there is no record of anyone to contact when trouble arises. Those who manage money for any cognitively impaired person may notice red flags, but typically they report a suspicious activity to their compliance officer. Our experience with compliance officers in financial institutions is that they, too, generally have insufficient training in dealing with customers experiencing diminished capacity. Compliance may be required to send the matter to their legal department. The general reaction we observe is that legal directs the the compliance officer to tell the manager to freeze the account. That stops abuse, but it deprives the elder of funds that may be needed for their support. The elder and whomever is honestly caring for them are now paralyzed. They can’t meet essential living expenses without funds and can’t maintain needed caregiving help because funds are blocked.

An Unworkable Suggestion

Vulnerable elders may well depend on the income from the frozen account and there is no clear solution offered by the financial advisor in the institution. Sometimes they arrogantly tell the concerned persons trying to protect the elder from further abuse to just “go get a guardianship.” They say they can’t unfreeze the account without a court order. In all but the most extreme cases, this is terrible advice! Getting a guardianship is very expensive, time consuming, and difficult. One must hire a lawyer. It can take months. Evidence must be of a high standard. Efforts can fail. What happens in the meantime? This is not a simple solution to the bank or financial institution’s concern about abuse. It is not a strategy to freeze an account until there is a guardianship. There are better ways to avoid this nightmare.

What Every Financial Advisor Needs

Anyone managing your finances or those of your aging parent should always have a copy of the elder’s own Durable Power of Attorney document in their records. Ideally the advisor or institution representative should also meet that appointed person. That way, there is less likelihood of an interloper trying to seize control over the older person’s assets, and push out the long standing, properly appointed person. The appointed agent (called “attorney-in-fact”) is then on record with the advisor. Freezing the account is then unnecessary. Putting a specific fraud alert on the account so that the suspected abuser can’t do business there works much better. But the honest agent can still withdraw the elder’s funds for the elder.

Do This For Aging Parents With Diminished Capacity

If your elder has some memory loss issues, even if they seem otherwise fine, take the memory loss as a warning sign of things to come. Loss of financial judgment often emerges sooner or later. That sets them up for abuse. With permission, contact the financial advisor and their institution about your aging parent’s issues and be sure your elder’s own, self-generated Power of Attorney document is in the advisor’s hands. No one can predict whether a predator will show up to take advantage. If you are a concerned family member and you have seen that the appointed person is the one stealing or taking advantage, notify the advisor. Be that “trusted contact”! Volunteer for it. As in the ThinkAdvisor story referenced above, no one needs a court battle over anyone’s $5M IRA.

Takeaways

1. Don’t be lulled into a false sense of security that your aging parent’s trusted financial advisor will always be able to protect them. When predators and suspicious activity emerge, the advisor must report it to their compliance department. It then often must go to the legal department and access to your aging parent’s own money can be frozen.
2. If you are the appointed person to take over when your aging parent can no longer manage finances, be sure your aging parent’s financial institution and advisor know who you are and what authority you have.
3. This applies to YOU too! You may be perfectly fine and working or happily retired. No one can guarantee that you will never have diminished capacity for finances in your entire life. Be sure you do the simple things outlined here so that those who control your assets in financial institutions will not cut you off from your own assets because of suspicious activity they see or that is reported to them.