Ethics and elder financial abuse

As Australia’s population ages, the incidence of elder abuse is expected to increase. This includes financial elder abuse, something financial advisers need to be able to identify and deal with appropriately. This article, proudly sponsored by GSFM Pty Ltd, discusses elder abuse and the ethical ramifications for advisers.

Any discussion of elder abuse in Australia needs to consider Australia’s ageing population. As the proportion of people aged 65 plus steadily increases, the overall population of older people vulnerable to elder abuse increases accordingly.

The proportion of people aged 65 and over has increased over the last century from five percent in 1926 to 15 percent in 2016. It is projected to rise to 22 percent by 2056 (figure one). The trend continues with people aged 85 years and older; this cohort represented two percent of the population in 2017 and is predicted to increase to 4.4 percent in 2057^[1].

CFCA Paper no 51 identified elder abuse as a serious problem in Australia and one that requires policy attention from the government and its agencies. The paper cites ABS population projections to support its claim; this data indicates that over the next 25 years, the number of people aged 65+ years will double to around nine million Australians. The incidence of elder abuse is expected to increase in line with our ageing population.

The Council of Attorneys-General Organisation is in the process of developing a National Plan to Respond to the Abuse of Older Australians (Elder Abuse). The project, which commenced in 2019 is anticipated to be completed in 2023 and aims to provide a framework for action to respond to elder abuse. This highlights that the issue of elder abuse is real, is taken seriously and is recognised as an issue that must be addressed.

What is elder abuse?

One of the most widely quoted definitions of elder abuse is that which has been adopted by the World Health Organization (WHO). This defines elder abuse as:

“A single or repeated act, or lack of appropriate action, occurring within any relationship where there is an expectation of trust which causes harm or distress to an older person.”

While elder abuse takes several forms, financial elder abuse is the form of greatest concern to financial advisers. There are a number of definitions for financial elder abuse, including this used by AFCA:

“When someone in a position of trust (the abuser) illegally or improperly uses and exploits the funds, property, or other assets of a known older adult for the profit or advantage of someone other than the adult.”

AFCA notes that financial elder abuse, like other forms of elder abuse:

• occurs where the abuser is someone known and trusted by the abused
• can be perpetrated against any older person, regardless of gender, means and background
• often occurs in conjunction with other forms of abuse and controlling behaviour.

The Financial Services Council (FSC) defines elder financial abuse as:

“Any activity by an individual that seeks to use fraudulent, illegal, deceptive or otherwise improper acts or processes to advantage from the financial resources of an older or elderly individual.”

In this definition, advantage can include:

• personal profit or gain
• enabling profit or gain for a relative, friend, spouse or business associate
• deprivation of the right of an older or elderly individual to access benefits, resources, belongings or assets for any reason.

How prevalent is elder abuse?

The National Elder Abuse Prevalence Study published in 2021[2] found that one in six older Australians (15 percent) reported experiencing abuse in the 12 months prior to being surveyed between February and May 2020. This was a nationally representative survey of 7,000 people aged 65 and over living in community dwellings (i.e., not in aged care settings).

While this report found financial abuse was less common than other forms of elder abuse, two percent of those surveyed had experienced it. Compare this to global data on the prevalence of elder abuse provided by WHO, which suggests two-to-14 percent of elderly people in high- or middle-income countries suffer elder abuse, and, of these, financial abuse was the most prevalent (nine percent).

Perpetrators of elder abuse are often family members, primarily adult children (18 percent) or their partners (7 percent). Men are more likely to commit elder abuse than women (55 percent compared to 45 percent).

When it comes to financial elder abuse, children are the largest perpetrator group (33 percent). Sons are almost two times more likely than daughters to perpetrate abuse (24 percent versus 12 percent). The two next significant perpetrator groups for financial abuse are friends (9 percent) and service providers (6 percent).

Of concern is the finding that almost two thirds of older people don’t seek help when they are abused. Only 30 percent of victims of elder financial abuse sought help or advice, however nearly 80 percent took action to stop the abuse. Of these, 60 percent spoke directly to the perpetrator, 30 percent broke contact with the perpetrator and 14 percent undertook legal action. Taking legal action was more likely to be reported for this financial abuse than any other type of elder abuse. Police were involved in 25 percent of the financial elder abuses cases where assistance was sought.

What form does elder financial abuse take?

Elder financial abuse can take many forms. Your experience as a financial adviser is likely to vary from experiences across other financial services such as banks or insurers. According to the FSC, an act of elder financial abuse includes any activity that seeks to undermine the rights of an elderly person for the financial gain or advantage of an individual.

There are many ways elder financial abuse may manifest in day-to-day interactions you may have with older clients. Examples provided by the FSC include:

• Illegal or improper use of an elderly person’s assets, including physical assets (such as their home or property) and/or financial assets (such as pension payments, superannuation or cash at bank).
• Acquisition and misuse of control over an elderly person’s funds or assets through threatening or coercive means.
• Acting as an agent for an elderly person’s financial affairs without formal appointment.
• Committing an elderly person to financial contracts or commitments that are not in their best interests, such as informal loans made to family members or friends.
• Coercion of an elderly person into appointing a Power of Attorney (POA) or changing their will.

What are the warning signs?

A client may not always disclose or even be aware of financial elder abuse. However, AFCA has identified some of the red flags for advisers to be aware of that may indicate that a client is experiencing financial elder abuse. These include:

• fear, stress or anxiety expressed by your client
• reluctance or confusion when talking about their financial situation
• lack of knowledge or understanding of their financial situation (particularly debts or services)
• implausible explanations or confusion about what they are doing with their money, inability or reluctance to provide information about their accounts or financial situation
• the involvement of a third party as a representative (especially where the representative is the primary conduit of information)
• concern about missing funds or banking-related documents
• inconsistent signatures on documents
• large, unusual, or erratic withdrawals or transfers without plausible explanation.

AFCA also notes a range of transactional red flags for advisers to be aware of. Client transactions on financial accounts or products can be important indicators for elder financial abuse. Where you and your staff are familiar with a client’s routine transactions or their long-standing arrangements, you may be able to identify unusual or irregular account activity.

Such transactions could be used as triggers for follow-up action, verification or authorisation, in the same way some transactions trigger action against potentially fraudulent account activity. AFCA provides the following transactional red flags that may be accompanied by the client-facing red flags outlined above. Importantly, these transactions are considered red flags only where they represent a deviation from the client’s business-as-usual activity. This may include:

• Aactivity in previously inactive accounts
• address changes on an account by a third party, or requests by the third party to send correspondence to them
• new third-party requests on behalf of a client
• increases in withdrawals, payouts or liquidity
• transfers of assets or financial products to a new third party
• changes in preferred operation of financial instruments following the appointment of a POA or legal guardian
• underwriting of loans, purchases of new assets or new financial products.

Ignoring any red flags that present, whether in your client’s demeanour or transactions can be construed as failing to act in their best interests and a breach of the adviser Code of Ethics.

What about representatives?

Both the FSC and AFCA note the potential for financial elder abuse that can arise where a client is represented by a family member or other party. Misuse of POA and Enduring POA instruments are among the most common ways in which elder financial abuse is committed according to the FSC. A POA appointment makes it easier for a perpetrator to engage in elder financial abuse through the use of rights inferred through the POA appointment.

This is not to suggest that the presence of a representative for an older client person is an indicator of financial elder abuse; however, it’s important that you consider whether there are any red flags, as described above, in conjunction with a representative. These elements in combination may be sufficient cause for further investigation and escalation. In fact, a failure to do so could be regarded as a failure to meet your obligations under standard^[2] of the Code of Ethics, which requires you to act with integrity and in the best interests of each of your clients.

Where there is misuse of POA rights to perpetrate elder financial abuse, it’s most commonly identified in situations where adult children – predominantly males – seek to deprive an elderly parent of their access to, or use of, financial resources.

There seems to be three key reasons for this:

• The first is ‘bequest impatience’ where the child seeks to access money or assets they expect to inherit at some future time.
• The second is to preserve assets they are likely to inherit when the elderly parent passes away.
• The third is perpetrated by adult children who have a sense of entitlement to those assets because they have acted as the primary caregiver to their parent.

These motivations for elder financial abuse have been found to underpin most reported cases of elder financial abuse.

The FSC has identified the following types of transactions as common forms of elder financial abuse committed by adult children using their role as POA to access or preserve their inheritance:

• improper trading in the title to the parents’ property
• failure to sell assets or release funds needed by an elderly parent, with the goal to preserve their inheritance
• adult children gaining control over inheritable property and exhausting estate resources to the disadvantage of elderly parents or other beneficiaries
• adult children benefitting from carers payments without providing adequate caregiving services to the elderly parent.

Ethics and elder financial abuse

You may have older clients at risk of financial abuse. It isn’t always easy to identify and may, at times, risk upsetting a client who is unaware or in denial that the financial abuse is taking place. However, it’s imperative to act on any suspicious activity to ensure you meet your basic ethical requirement – to always act in the client’s best interests.

Ethical considerations related to elder abuse, particularly financial abuse, include:

• avoid contributing to the perpetration of unlawful acts
• avoid conflicts of interest between clients, in particular where two generations of a family are clients
• ensure your clients are well informed; as clients age, educate them about what constitutes elder abuse and make sure they know there are steps they can take to avoid or report it
• ensure your client understands your advice and has capacity to act
• be respectful – after all, just because a client is old does not mean they’re not able to make valid financial decisions
• your client’s best interests always come first.

AFCA notes that financial abuse does not only happen in situations where a person lacks legal capacity. Although cognitive incapacity can increase the risk of financial abuse, vulnerability may be increased when an older person has reduced mobility, vision or hearing, or has any physical dependence on another person for care or assistance with tasks including banking.

Best practice guidelines

The following standards are specified by AFCA and, while many are more pertinent to banking, where relevant AFCA expects financial advisers will follow comparable best practice:

• Expectation that a financial firm talks to the elderly person separately and in private about the financial transaction. AFCA considers a conversation must be more than one question. A third party should not be present during this conversation.
• When the customer is alone a financial firm should be willing to have a conversation with them about the reason for the financial transaction.
• Financial firm employees should listen carefully to what the customer says.
• Financial firm employees should discreetly discuss the financial transaction to test the credibility of the explanation; however, the conversation should not be an interrogation.
• Financial firm employees should check the elderly person’s account records, account operating instructions and who is authorised to operate the account. If there is more than one account holder or person authorised to operate the account, the financial firm should contact the other account holder or authorised person before allowing the financial transaction to occur.
• Where a POA is acting on behalf of the elderly person, check the POA to see if there is another attorney who can verify that the financial transaction is appropriate and not to the detriment of the elderly person.
• Has a Guardian been appointed? If so, is the person accompanying the elderly person the Guardian? If not, the financial firm should take steps to contact the Guardian and not perform the financial transaction until it has been confirmed by the Guardian.
• Financial firm employees should escalate their concerns to the appropriate senior person before conducting the financial transaction.
• A financial firm may consider declining or delaying the transaction, for example by asking the customer to come back the next day if they still want to proceed.
• Financial firm employees should feel free to ask the customer if there is another family member or friend the financial firm can talk to about the financial transaction before proceeding with it.
• If there is no other family or friend, a referral to a relevant support service might be appropriate.
• Financial firm employees should follow their internal policies and procedures whenever they see warning signs of financial abuse. If there are no policies and procedures in place, we expect the financial firm to explain why.

Complaints

When it considers complaints that involve financial elder abuse, AFCA asks the financial firm to provide information including:

• Contemporaneous customer notes about transactions where financial elder abuse was of concern. This should set out the circumstances giving rise to the concern and the steps the financial firm took to delay the transaction or take other preventative action.
• Details of any conversations held with the customer.
• If the financial firm did not discuss their concerns separately and in private with the elderly person, an explanation of why this did not occur.
• Details of any specific preventative action taken.
• Recollections of events from financial firm employees involved in transactions which are the subject of the complaint.
• Copies of its internal policy and procedures in relation to financial elder abuse, and specific steps the financial firm took to comply with those internal policies and procedures.
• Where applicable, contemporaneous notes or relevant documents showing the customer received a benefit from the transaction in dispute.

A failure to follow through on suspected cases of financial elder abuse will potentially breach several of the standards in FASEA’s Code of Ethics.

AFCA’s findings may include that the financial firm is liable to reimburse losses to a client who is the victim of elder financial abuse. Such cases have included:

• The client is unable to read due to blindness or illiteracy.
• The customer’s signature on withdrawal or other transaction documents has been forged.
• An unauthorised electronic transaction has been performed and liability is allocated to the financial firm under the ePayments Code.
• The firm is on notice of the customer’s mental incapacity or undue influence.
• The firm has assisted in a breach of trust.
• The firm has itself taken advantage of a vulnerable elderly person so as to have engaged in unconscionable conduct.

How can you help your clients?

As with other forms of elder abuse, financial elder abuse is often perpetrated by someone known to, trusted and often loved by the victim. As well as working with your clients by following the best practice guidelines, you can direct them to receive further support from a referral agency. Each state has a community service that provides free and confidential assistance to older people experiencing elder abuse, including financial abuse.

Case studies

The following case studies are based on real events; however, the names of people and organisations have been changed, and some details altered. The case studies have been drawn from a range of organisations that deal with elder abuse. For each, potential breaches of FASEA’s Code of Ethics will be identified.

Case study one: The POA

Joanna is in her late 80s and a client of ABC Financial Planning. A few years ago, Joanna’s son Henry and daughter Anne established a joint enduring power of attorney should their mother require assistance and stewardship in her later years. Joanna’s financial adviser Mary is aware of the POA and has met with both children.

Despite a recent stroke, Joanna’s mental acuity remains strong. However, she’s unable to travel as easily and as a result, Anne has become her default carer. Anne has dropped her work to part time hours so she can care for her mother.

Anne contacted Mary and asked her to redeem a managed fund investment valued at $45,000. She explained that it would be used to make some modifications to Joanna’s home to make it safer and more comfortable.

Mary contacted Joanna at a time she knew Anne would be working to ensure that she was aware of this request, its purpose and quantum. As it turned out, the building works had been quoted at $35,000. Anne had intended to keep the remaining $10,000 as ‘payment’ for her services as a carer, without her mother’s knowledge or approval. Mary made a file note of this issue in case the situation arose again at a time she wasn’t present at the firm.

Although AFCA acknowledges that employees of financial firms are not expected to be detectives, it is their duty to exercise reasonable care and skill, which includes an obligation to question the client’s authorisation of a transaction. This includes circumstances where there’s a possibility that a client is being financially abused or the use of funds is not consistent with the customer’s wishes or for their benefit.

Through her actions, Mary acted in Joanna’s best interests and did not breach the Code of Ethics. However, had she simply actioned Anne’s request, she would have potentially breached the following standards:

Case study two: Change to investment approach

Michael, 83, had been widowed for fourteen years. He was an accountant in his professional life and had taken a keen interest in the sharemarket. As a result, he had built up a substantial share portfolio over the years, which he had managed as an SMSF along with his financial adviser John. His SMSF provided a good level of retirement income and as a result, he was not eligible for the Age Pension.

John had looked after Michael’s financial interests, including his SMSF portfolio, for a number of years. At their most recent meeting, Michael requested that John liquidate a portion of the portfolio as he wanted to gift $250,000 to his daughter to pay out her mortgage. John noted that Michael seemed a little shaky and uncertain as he made the request and did not speak with his usual air of authority. He also seemed confused about the likely impact on his future income.

The following day, Michael’s daughter called into the office and delivered signed paperwork to action the liquidation. John noticed the signature looked unsteady and unlike John’s usual strong penmanship. Michael’s daughter demanded to know when she would receive the money and provided bank details for the deposit. She called regularly until the funds were in her account.

John did not follow up with Michael prior to actioning the withdrawal request, despite noting the oddity of his signature, and that Michael did not seem comfortable or certain about the instructions he provided. He also did not consider or discuss the likely impact this withdrawal might have on Michael’s future income.

Breaches of FASEA’s code of ethics

John failed his elderly client, despite recognising that he was not comfortable with the situation. As a result, he potentially breached the following standards of the adviser Code of Ethics:

Case study three: Dishonest adviser

Matthew and Judy had been clients of ABC Financial Planning for over 25 years. When their trusted adviser Monty retired, their account was taken over by Chris, a younger adviser who was new to the firm. Because they’d had such a long and successful relationship with Monty, Matthew and Judy transferred their trust to his successor.

Judy was the more financially savvy of the pair and she understood their retirement savings had to last. Matthew had experienced health issues and was showing signs of cognitive decline. Judy had started to consider their future aged care needs.

After six months of looking after their financial affairs, Chris contacted Matthew and told him about a new managed investment scheme that would provide an income stream of 18 percent per annum – very attractive in a world of low interest rates.

The investment Matthew was invited to review was ‘fail proof’ property scheme in an adjacent beachside suburb. Matthew knew this area was booming. Chris invited him into the office and showed him a PowerPoint presentation with fancy graphics and pages of financial projections, including remarkable projected returns.

Chris explained that this was a ‘once in a lifetime opportunity’. It was limited to a select number of investors and he had to act fast to secure an investment. Chris did not disclose he was one of the developers, nor that his business partner had a history of failed developments and bankruptcy.

Matthew was convinced to invest on the spot. He signed over $150,000 from the couple’s cash account and signed the already completed investment paperwork. Judy was not happy when she heard about the investment. She contacted Chris but was assured it would be the best decision of their lives. She was also told there was no cooling off period, so it was, in Chris’s words ‘a done deal’.

After 14 months, the development was little more than a hole in the ground and there was no sign of activity.

The couple’s regular entreaties for an explanation went unanswered. Some year and a half after Matthew made the investment, ABC Financial Planning informed them that Chris had left the business. They approached the firm to see what could be done about their investment and were told ‘nothing’ – Chris had left no files.

Judy sought legal help and made a complaint to AFCA. The money Matthew had signed over was not an insignificant portion of their retirement funding and without the promised income, they were now significantly reliant on the Age Pension.

Breaches of FASEA’s code of ethics

Chris took advantage of his elderly clients, deliberately targeting the most vulnerable. Chris potentially breached the following standards of the Code of Ethics:

For the financial advice industry to grow and thrive at a time when the industry is shrinking, it needs to reclaim trust and build professionalism. Acting ethically will, over time, build trust among Australia’s consumers and increase their confidence in seeking financial advice.

As Australia’s population ages, it’s anticipated that elder financial abuse will rise. The FSC^[3] believes the relationship between the client and financial services provider is the most important point of contact for identifying elder financial abuse. When financial services providers have well-established relationships with clients, it allows them to detect actions or behaviours that are out of character for the client and investigate further.

This reinforces the importance of the relationships you have with your clients. Sharing information about elder abuse – particularly financial elder abuse – is a conversation worth having as clients approach retirement age. While it is good practice that client have appropriate legal instruments in place – will, POA, guardianship – it’s important that you know the appointees, and that all parties to such instruments are aware of their obligations.

As is clear from AFCA’s requirements, all advice practices should have clear policies and procedures in place to identify and manage cases of elder abuse. This will ensure you continue to act in the best interests of all clients and meet your ethical obligations. After all, abiding by the Code of Ethics, embedding it in your practice and making it part of your daily routine is an important element of the journey to restore the industry’s positive reputation and re-establish its importance to the financial security of all Australians.

 

 

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References:
[1]  Elder abuse: Key issues and emerging evidence, CFCA PAPER NO. 51, June 2019
[2] https://aifs.gov.au/sites/default/files/publication-documents/2021_national_elder_abuse_prevalence_study_summary_report_0.pdf
[3] The FSC Guide to the Prevention of Elder Financial Abuse 2019