Portfolio Solutions® serves more than 600 clients in 44 states and the District of Columbia1. Working with this large and diverse group of investors provides our team with firsthand experience advising on topics which may also impact your family.
One area we think requires your proactive attention involves caring for our senior family members. In particular, helping to manage and protect their finances while aging. Whether due to cognitive decline, disabilities, or the reliance on others for care, the ability of older investors to conduct their own financial affairs often decreases over time. Unfortunately, this change in ability can also lead to increased risks of financial exploitation and abuse.
According to the Securities Industry and Financial Markets Association, seniors in the U.S. lose an estimated $2.9 billion every year in cases of financial exploitation, with only 1 in 44 cases reported to authorities.2 The Consumer Financial Protection Bureau reported in its February 2019 filing "Suspicious Activity Reports on Elder Financial Exploitation: Issues and Trends" the following3:
- Financial institutions reported a total of $1.7 billion in suspicious activities in 2017, including actual losses and attempts to steal the older adults' funds.
- In incidents involving a loss to an older adult, the average amount lost was $34,200. In 7% of these cases, the loss exceeded $100,000.
- Adults ages 70 to 79 had the highest average monetary loss ($45,300).
- Losses were greater when the older adult knew the suspect. The average loss per person was about $50,000 when the older adult knew the suspect, and $17,000 when the suspect was a stranger.
- More than half of incidents involved an electronic money transfer, with the average monetary loss to the older adult amounting to $32,800.
- Suspicious activity reported took place, on average, over a four-month period.
As more baby boomers enter their senior years, this problem seems likely to grow. "The aging of baby boomers means that within just a couple decades, older people are projected to outnumber children for the first time in U.S. history," said Jonathan Vespa, a demographer with the U.S. Census Bureau. "By 2035, there will be 78.0 million people 65 years and older compared to 76.7 million under the age of 18." That means one in every five Americans will be of retirement age.4
How Portfolio Solutions® Can Help
As a fiduciary, Portfolio Solutions® takes protection of our elder clients' finances very seriously. We feel you should do the same for your family, whether considering aging parents and relatives or thinking about protecting your own wealth some years from now.
What are some things we do to help protect our clients? Here are a few examples:
Hold assets at an independent custodian – Portfolio Solutions® only has limited authorization to trade securities with discretion and deduct our quarterly management fee from client accounts. We have no other authority to access client funds.
Verify distributions - When our clients contact us regarding distributions from their investment portfolios, we transfer the individual to a recorded line and ask a series of questions to verify their identity. In addition, we can implement a unique passphrase to provide an extra layer of security. Distributions can only be made in a manner or to accounts pre-approved by the client.
Compare account records – All Portfolio Solutions® clients have access to reporting from two sources. First, Portfolio Solutions® provides 24/7 access to online reporting with our newly enhanced PS Client Portal and secure document vault. Separately, custodian reports and online accounts provide the means to independently compare balances, transactions, and other account details to those provided by Portfolio Solutions®.
Implement a trusted contact - While you may have already authorized another person on your investment accounts with a Power of Attorney (POA) designation, Portfolio Solutions® can also help you in electing a Trusted Contact to serve as an additional resource. A Trusted Contact can assist Portfolio Solutions® and the independent custodian to act quickly and decisively should you, your spouse, or other family member suffer diminished capacity to manage finances or become a target of fraud.
Having both a Trusted Contact and a person with POA is important because, sadly, 90% of elder abusers are family members or people who are closest to the victim5. Trusted Contacts are typically family members or close friends—people you trust and who are likely to know and understand your current situation—as opposed to someone with POA. In addition, only the account holder can add, update, or remove a Trusted Contact from their account.
This person gains authorization to speak on your behalf to:
- Confirm the account holder's current contact information
- Discuss the account holder's mental or physical health status
- Discuss activities or other possible red flags that might indicate the account holder is being financially exploited
- Address other limited circumstances when permitted by law
Naming a Trusted Contact gives both Portfolio Solutions® and the custodian permission to speak with the Trusted Contact when account activity seems suspicious. The custodian will work directly with the advisor to address sensitive situations in which exploitation is suspected.
Additional Ways Seniors Can Protect Themselves
In addition to the actions mentioned above, here are a few more ways seniors can better protect themselves from financial abuse:
Remain socially active
Seniors who retreat from social activity may subject themselves to heightened risks of fraud and abuse. Maintaining an appropriate level of social contact can help family and close friends detect warning signs of elder abuse. Here are a couple of websites that allow seniors to stay active by connecting with other seniors:
Beware of new "friends"
While remaining socially active has its benefits, taking time to acquaint family with new persons befriending seniors may be just as important. For example, transferring funds to new "friends" who are assisting with transportation to doctor appointments, personal shopping, and other forms of care could support a legitimate need or be a red flag that financial exploitation is occurring6.
Avoid joint bank accounts
Adding a family member or friend to a new or existing bank account may be a well-intentioned way for seniors to get help managing their finances. While convenient, a joint bank account can also serve as an easy way for theft and abuse to occur. Should this arrangement be necessary, regular review and reconciliation of account statements should be performed by the account owner or a trusted third party.
Be careful when selling a home
When living arrangements require change, older adults might consider changing the deed to their home by naming a trusted family member to facilitate sale of the property. Such a change should be done in close consultation with a qualified attorney, and in a manner that ensures any property transactions are conducted at arms-length and with proper accounting for sales proceeds. 7
Invoke a power of attorney
The risk of financial abuse heightens after a person develops a decreased capacity to make independent financial decisions. Invoking a power of attorney can be one proactive way to prepare for the future of one's wealth and assets. Seniors should consider getting legal advice to help in this process.
Resources for Assistance
In addition to Portfolio Solutions®, below is a list of resources that can help seniors protect themselves and help them recover from financial abuse8.
- Consumer Financial Protection Bureau's Office for Older Americans
The Consumer Financial Protection Bureau is a U.S. government agency that regulates the activity of banks, lenders and other financial institutions to ensure consumers remain free of unfair, deceptive or abusive practices.
- Federal Trade Commission (phone and other scams, identity theft)
The Federal Trade Commission is a consumer protection agency that aims to prevent unfair, fraudulent and deceptive business practices, such as phone and other financial scams. Learn how to recognize a scam and what to do when you are targeted. This agency also provides tips for protecting your identity and help recovering from identity theft.
- National Adult Protective Services Association
The national non-profit organization has representation in all 50 states and works to increase awareness of elder abuse through education and advocacy.
- Investor.gov, U.S. Securities and Exchange Commission (SEC)
Brought to you by the SEC's Office of Investor Education and Advocacy, Investor.gov is an online resource to help investors make sound investment decisions and avoid fraud. See "Diminished Capacity" and "Elder Fraud" topics at this website for information to help protect senior investors.
We hope that these tips help keep you and your loved ones protected from fraudulent behavior. If you have questions surrounding financial exploitation for seniors, think someone you love may be affected, or you would like to learn more, please don't hesitate to contact us by calling (248) 689-1550.
Not a current client, but ready to get started? Click here to schedule a phone consultation to learn more about Portfolio Solutions® and how we can serve you!
Disclosures & References:
1As of August 31, 2019.
2"Senior Investor Protection," SIFMA, accessed May 2019, https://www.sifma.org/explore-issues/senior-investors.
3Office of Financial Protection for Older Americans, Suspicious Activity Reports on Elder Financial Exploitation: Issues and Trends , Consumer Financial Protection Bureau, February 2019.
4"Older People Projected to Outnumber Children for First Time in U.S. History," U.S. Census Bureau Release Number CB18-41, September 6, 2018.
5Source: Charles Schwab & Co.
7 Portfolio Solutions® does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
8Source: MedicareAdvantage.com https://www.medicareadvantage.com/complete-guide-to-elder-financial-abuse
9Source: U.S. Securities and Exchange Commission
All information presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service, nor should it be construed as tax or legal advice. Please click here to see our blog disclosure, which immediately follows the "Applicable Law and Venue" section.