Striking a delicate balance between privacy and consumer protection, a trade group that represents state securities regulators plans to release new guidelines for financial professionals dealing with fraud against the elderly. It’s a problem that has long dogged the financial industry.
It’s a question that balances privacy vs. safety: When a person’s mental sharpness fades with age, what role should the financial industry play in protecting that person from fraud?
Current laws tend to favor privacy. But with rising rates of dementia and Alzheimer’s disease posing serious challenges for society—the number of people with Alzheimer’s could more than triple to 16 million by 2050, according to the Alzheimer’s Association—some associations in the financial space are beginning to sharpen their focus on the issue.
The North American Securities Administrators Association (NASAA), which represents securities regulators at the state level, is working on a set of guidelines for the industry, according to Reuters. The Securities Industry and Financial Markets Association (SIFMA) has long pushed for a system that would help brokers handle situations involving clients who may have dementia.
NASAA is expected to issue the guidance in written form in September.
The Depths of the Problem
The problem of elder fraud is ongoing and serious. In a 2012 study [PDF] by the nonprofit Investor Protection Trust, 84 percent of financial professionals who dealt with investor fraud issues said the problem was getting worse.
Last year, NASAA listed affinity fraud, which often affects elderly customers, as one of the top investor threats facing the industry.
“Fraudsters know that people tend to trust someone who is perceived to have a common interest, [belief], or background and use that trust to exploit members of specific groups,” NASAA noted.
The association’s latest efforts aren’t its first on this issue. In 2008, the group worked with SIFMA, the Securities and Exchange Commission, and the Financial Industry Regulatory Authority on a report [PDF] advising the financial industry on compliance issues. And the U.S. Consumer Financial Protection Bureau has released a set of guidelines on how banks can balance the legal and privacy issues raised by fraud against the elderly.
Advice For Financial planners
Meanwhile, AARP has prepared a guide with the Financial Planning Association [PDF] to help planners with the challenges they may face when working with older clients.
“Notably, financial professionals may be among the first—sometimes the first—to detect a decline in their clients’ mental and physical capacity as they age or succumb to illness,” the document notes. “Many financial professionals concede that diminished capacity—the term most frequently used to describe a client’s erosion in physical and cognitive functions—can produce some of the most challenging moments in the financial professional/client relationship.”
The guide recommends a number of strategies for working with senior investors, including ways to communicate and build trust.