Free Retirement Guide

It's never too soon to start preparing for retirement. But do you know what to look out for? Download our free ebook, "Retire Happy: A Simple Guide to Your Next Big Adventure."

Thank you! Oops!
Seniors Face Higher Financial Vulnerability than Previously Anticipated: Study by FINRA

Seniors Face Higher Financial Vulnerability than Previously Anticipated: Study by FINRA

January 25, 2024

Many clients work closely with their financial advisors over a lifetime, diligently amassing significant wealth. However, as they enter their later years, they become susceptible to swift exploitation by fraudsters. A recent academic study suggests that more seniors are at risk of this fate than previously believed.

A collaboration between the FINRA Investor Education Foundation and the Rush University Medical Center has produced a new research paper, released online on Friday. The study reveals a concerning vulnerability among a substantial number of senior Americans to various forms of financial scams. Surprisingly, even those considered cognitively unimpaired were found to be susceptible. This underscores the need for financial advisors and their institutions to prioritize implementing additional safeguards to protect the assets of older clients.

The consequences of elder fraud are profound. AARP's research this summer uncovered that victims aged 60 or older suffer annual losses of $28.3 billion due to elder fraud.

The study involved a behavioral experiment in which a scammer, operating as a real-world con artist, targeted seniors. Posing as a fictitious government agency worker, the scammer utilized letters, emails, and phone calls to extract personal information from the seniors. A majority, around 69%, did not engage with the scammer, while another 15% interacted but remained skeptical. Shockingly, 16% engaged without skepticism, 12% willingly shared personal information, and 5% even disclosed the last four digits of their Social Security numbers.

The researchers noted in their report that if these findings were extrapolated to the wider population, they would indicate an alarming level of vulnerability among older adults, surpassing previous survey data. The researchers also recognized that actual fraudsters could create more convincing scams, apply more pressure on victims, and impersonate genuine government agencies, making the problem even more severe.

Additionally, the report highlighted that most participants were white and highly educated. If the sample had been more representative of the overall elderly population, the risk of falling victim to scams would likely have been even higher. The emergence of AI voice scams that convincingly imitate the voices of friends or family members is expected to exacerbate the issue further.

While previous research on elder fraud primarily relied on self-reported data, the authors of this study believe that their work represents a pioneering effort. They used a real-world behavioral experiment to measure fraud vulnerabilities among older individuals, addressing the limitations associated with self-reporting.

The study engaged 644 Americans with an average age of 86, from October 2021 to December 2021. Key demographic details include:

  • 78% were female, and 92% were white.
  • Participants had a median household income between $50,000 and $75,000.
  • Participants were identified through the Rush Memory and Aging Project (MAP), a long-term study on aging in the greater Chicago area.
  • After the experiment, participants received a debriefing and a presentation from the FINRA Investor Education Foundation on financial fraud.

How Can We Assist?

We are committed to safeguarding our elderly clients by taking several proactive measures:

Cultivate Trusting Relationships: Establish and nurture a strong, trusting relationship with each client. This fosters an environment where clients feel comfortable sharing financial concerns or unusual requests.

Know Your Client (KYC): Conduct comprehensive due diligence during onboarding. Gain insights into the client's financial objectives, risk tolerance, and potential vulnerabilities. Stay attuned to the client's life circumstances.

Maintain Regular Communication: Maintain ongoing communication with clients to detect any red flags or changes in behavior indicative of financial exploitation.

Monitor Accounts: Continuously monitor client accounts for unusual transactions or activity. Implement automated alerts for large withdrawals, wire transfers, or beneficiary changes.

Implement Safeguards: Encourage clients to establish safeguards, including a trusted contact person and a durable power of attorney, for added protection.

Stay Informed: Stay abreast of regulatory changes and best practices in preventing elder financial abuse. Engage in training and workshops to enhance expertise in this area.

Report Suspicious Activity: Promptly report any suspicions of financial exploitation to the appropriate authorities, such as Adult Protective Services or law enforcement.

Prioritize Privacy and Security: Ensure the secure storage and transmission of client information using encryption, robust passwords, and multi-factor authentication.

Promote Checks and Balances: Encourage clients to involve multiple trusted individuals in their financial decision-making to mitigate undue influence.

Uphold Ethical Practices: Maintain the highest ethical standards and prioritize the client's best interests when managing their finances.

Safeguarding elderly clients from financial fraud necessitates a proactive and vigilant approach. We are not just financial advisors but also advocates for your financial well-being, especially when vulnerable individuals are at risk of exploitation.