Mention the topic of financial scams against seniors, and most people will think of a telemarketing fraud or a Ponzi scheme. But more often than not, the scammer is a member of the senior's own family.
"We spend a lot of time warning seniors they will get scammed if they answer email or pick up their phones, but most of money goes out the back door with family members," says Randy Thomas, a retired law enforcement officer and past president of the National Committee for the Prevention of Elder Abuse. The most frequent form of abuse is spending by relatives without the senior's permission, according to a study commissioned by the U.S. Department of Justicethat surveyed a cross-section of seniors across the country.
Thomas, who trains social workers, judges, healthcare and law enforcement professionals on elder financial fraud awareness and prevention, says cases of family fraud often are the largest. "I've seen as much as three-quarters of a million dollars that disappeared over 18 months. The money, or control of a house - it's all just stripped away."
Law enforcement, regulators and the financial industry all are stepping up efforts to protect seniors against devastating financial loss due to scams. At the federal level, the Department of Health and Human Services recently announced a $5.5 million grant that will be distributed to states and tribes for elder abuse prevention. The funds were allocated under a provision of the Affordable Care Act designed to combat elder abuse, called the Elder Justice Act.
The Elder Justice Act also calls for creation of an Elder Justice Coordinating Council, which Health and Human Services has launched to coordinate prevention efforts; the team includes staff of the Justice Department and the new Consumer Financial Protection Bureau.
The Bureau this week finished taking public comments as part of a broad inquiry into financial abuse of seniors. The inquiry includes possible misuse of the various credentials held by financial planners, fraudulent use of various "senior certifications," the effectiveness of financial literacy efforts and financial exploitation of older veterans of the armed forces.
Family members who exploit seniors often have their own problems, says Pamela Teaster, a professor of gerontology at the College of Public Health at the University of Kentucky and a co-author of a study of the problem underwritten by Metlife. "They have a history of mental illness, or they are down on their luck or dependent on alcohol. And they are dependent on the elder."
And seniors are vulnerable: A growing body of research shows that the loss of cognitive ability as we age affects our capacity to make sound financial decisions. Roughly half of adults in their 80s suffer from dementia or cognitive decline that limits financial management skills, according to research by David Laibson, an economics professor at Harvard University. And a team of researchers at the University of Iowa uncovered characteristics of poor decision-making in the elderly that leave them vulnerable to the marketing tactics of fraudulent and abusive financial services.
Says Teaster: "We may not notice it, but as we age our cognition declines somewhat. And a place where that happens first is our ability to deal with numbers. So that can come together with someone disposed to take advantage of a senior, and it creates a maelstrom."
Experts urge seniors, family members and professionals who work with the elderly to be on the lookout for the following signs that an elder is the subject of financial abuse or is losing their ability to manage their own money:
Change in control. A sudden change in power of attorney, or a change of mailing address that points to a change in control of assets. Also watch out for the sudden appearance of a new person managing a senior's financial affairs.
Sudden isolation. This could be the case when you can't get through to the person on the phone, or if the person no longer sees friends and relatives.
New transaction patterns. Are they giving more to new charities? Writing more checks than they used to? Transferring money from one account to another in a way that's new?
Suspicious "specialists." Financial advisers billing themselves as specialists in senior matters merit close scrutiny, according to Kimberly Blanton, who has researched financial abuse of seniors at the Center for Retirement Research at Boston College. "There are legitimate advisers who bill themselves as being focused on the senior market," she says. "But there's a type of con man who understands unique things about seniors: Maybe they have money, or they're lonely or financially vulnerable, which makes them more open to scams."
Secrets. Scammers often ask seniors not to mention a deal to family members or friends. "They'll say it's an exclusive offer just for them," Blanton says. "That cuts off the possibility of any communication or cross-checking that could prevent the con man from completing a deal, or to take advantage of someone experiencing cognitive decline."
The free lunch. Seniors tend to have extra time during the day, so free lunches are a favorite technique of financial product salespeople. "The idea of the free lunch is to get seniors in front of them, where they can charm and cajole them, spin out their stories and get a higher chance of selling them," Blanton says.
(The writer is a Reuters columnist. The opinions expressed are his own.)