Protecting Your Most Vulnerable Investors from Financial Abuse

Posted July 5, 2017 by Nick Nichols

It’s not unusual these days to read about senior and vulnerable investors falling victim to a financial scam. Moreover, seniors and vulnerable persons, who often grapple with cognitive impairments and diminished decision-making abilities, are increasingly the most targeted for financial abuse. Studies estimate between $2.9 billion to $36.5 billion is lost annually to senior and vulnerable investor (SVI) fraud. While that’s a big range, even the low end shows the magnitude of the problem. Besides being extremely lucrative, SVI fraud is a low-risk crime: only one in 44 cases is ever reported1.

Growing Awareness and Attention

SVI fraud is not abating, but there is some good news: awareness around the issue has ramped up. Most recently, the federal government updated sanctions to include coverage for the financial exploitation of vulnerable individuals. More and more states are adopting statues and regulations that provide a legal framework to help in fighting financial exploitation of vulnerable adults.

There’s also an increased urgency and sensitivity within the financial services industry to combat the issue, and for good reason. Whether it’s reputational risk, regulatory fines, or fiduciary responsibility, there is a lot at stake for firms. But perhaps the most compelling reason for action – it’s the right thing to do.

On the Lookout for Telltale Signs

SVI fraud can take many forms, but atypical behaviors and transactions can often serve as an indicator of a financial crime. If you’re looking to protect your clients from SVI fraud, understanding how these crimes are committed and recognizing the red flags associated with it are important first steps.

Applicable red flags can include (but are not limited to) significant changes in spending patterns, unusual increases in ATM or debit activity, check numbers out of sequence, withdrawals through new payment channels, or the sudden purchase of certain securities that have never been owned before.

When it comes to SVI fraud, theft or diversion of funds or property is usually done by a trusted individual who has access to personal accounts, documents, and financial statements. Sadly, caregivers, family members, or friends are often the culprits. Changes in account registration or the addition or change to power of attorney can be other telltale signs of financial fraud.

What’s Your Game Plan?

There is a clear need and desire within the industry to prevent financial fraud among senior and vulnerable investors. What’s more, the industry is also well-positioned to help as one of the front-line defenders. But meaningful prevention requires a deeper understanding around how it occurs and use of advanced and proactive tools and processes to combat it.

Consider these strategies:

  • Establish protocols to recognize financial abuse indicators. Having processes for front-line staff to identify and understand red flags can prove significantly helpful in preventing fraud before it happens.
  • Implement a robust, automated surveillance program. Aggressively managing the daily monitoring of transactions across lines of business and product types helps you to effectively and efficiently detect unusual behaviors.
  • Leverage behavior analytics and establish protocols to help deliver more targeted results and insights. Employing behavioral analysis across large and varying sources of data can help drive risk profiling and assist in identifying behavioral patterns and insights.
  • Build and maintain a strong fraud network across the financial services industry. Leverage the knowledge and experiences across the financial services industry to gain a deeper and wider viewpoint of fraudulent behaviors.

In today’s SVI fraud-laden environment, it’s not just what you know but how you are proactively protecting your clients that matters. Investing in the collection, maintenance, and monitoring of investor data is a critical first step. Integrating behavioral analytics into your fraud detection program can further bolster efforts while helping meet your compliance responsibilities and mitigate your business risk.

It may only be a matter of time before one of your elderly or cognitively challenged clients becomes a target. Is your firm well-positioned to play a proactive role in protecting them from SVI fraud?

In the next article in this series, we’ll take a deeper dive into how firms can leverage analytics, technology, and operational scalability to combat financial exploitation among elderly and vulnerable adults.


Nick Nichols
Vice President
Risk and Compliance Intelligence
DST Financial Services


1 National Adult Protective Services Association (NAPSA) - Elder Financial Exploitation http://www.napsa-now.org/policy-advocacy/exploitation/.





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