CPD: Consumer protection brief – advisers at the frontline of preventing financial abuse

Introduction

Financial Abuse is a major societal problem, regarded by many observers, and some states, as a form of domestic violence. Although recognised in Commonwealth law, in most Australian jurisdictions it is not yet a criminal offence (Tasmania and NSW being the exceptions), which can hamper the pursuit and prosecution of perpetrators.

The growing scourge of financial abuse – estimates^[1] suggest more than 600,000 Australians will experience financial abuse in a single year – has significant economic and health impacts, and along with financial scams, represents one of the most significant consumer protection challenges we current face as a society.

The significance of the issue prompted the Parliamentary Joint Committee on Corporations and Financial Services to commence – in April 2024 – an inquiry into the financial services regulatory framework in relation to financial abuse^[2].

The committee called for written submissions by 14 June 2024, and amongst the 100 plus organisations and individuals to submit was the Financial Adviser Association of Australia (FAAA).

A major element of the FAAA submission was the crucial frontline role financial advisers can play in identifying, reporting, and preventing financial abuse.

(The role of advisers in preventing financial abuse was similarly put forward by the FAAA in their submission to an AUSTRAC Consultation which occurred later in the year).

With the FAAA clearly and publicly putting financial abuse on the radar of all financial advisers, this article serves as a high-level investigation into the nature, incidence, and impact of financial abuse, and the strategies financial advisers can play in its detection, reporting, and prevention.

More than just elder abuse

Elder abuse has received extensive media coverage recently. There is no doubt the cost-of-living crisis and housing affordability challenges facing Australia have contributed to a growing incidence of ‘elder financial abuse’. But while the dark side of ‘impatient inheritor’ syndrome is undoubtedly a major issue (as neatly summed in the article^[3] ‘The Bank of Mum and Dad is exposing Australians to the risk of Financial Abuse’), financial abuse is not only suffered by older Australians.

Indeed, 2020 data^[4] suggests most cases of financial abuse occur between the ages of 25 and 64, with a peak between 35 to 49 years – potentially reflecting the ages when victims’ earning capacity, and household expenses, are typically the highest.

So, what exactly do we mean by financial abuse?

A 2022 Report^[5] by Deloitte Access Economics defined financial abuse as:

“A deliberate pattern of behaviours in which an individual seeks to control, exploit or sabotage their partner’s ability to acquire, use and maintain financial resources.”

Financial abuse can take many forms, but according to White Ribbon Australia^[6], common indicators that a person may be financial abusing their partner include:

• controlling all of the household spending
• refusing to include their partner in financial decisions
• the withholding of money
• forbidding their partner to work
• monitoring what their partner spends
• taking out a loan in their partner’s name.

Early inheritance syndrome and other forms of elder financial abuse

The elderly are particularly susceptible to financial abuse, becoming more vulnerable due to their increasing frailty, increasing dependency and diminished capacity.

In many cases the abuser is a family member or carer, whose illegal or improper use of an older person’s funds or resources might include:

mismanagement of their funds or investments

• pressuring relatives for early inheritances
• pressuring the older person to accept lower-cost aged care or forego medical treatments in order to preserve an inheritance
• living with the older person and refusing to contribute money for expenses
• forging or forcing an older person’s signature
• persuading the older person to change the terms of an existing contract, the clauses in a Will or a POA through deception or undue influence
• convincing the older person to sign over the title/s of property they own or to sell their properties below true market value.

The incidence of financial abuse in Australia

According to the Deloitte Access Economics Report^[7], ‘The cost of financial abuse in Australia’, in 2020 over 620,000 Australian women and men were subject to financial.

Women are more likely than men to suffer financial abuse

A disproportionate number of financial abuse victims are women, with the same research suggesting the 620,000 comprised around 380,000 women and 240,000 men.

In percentage terms, this equates to nearly 1 in 30 women, compared to 1 in 50 men, although most experts believe this considerably underestimates the actual incidence due to under-reporting by women who may be too fearful to come forward, or who don’t realise they are a victim.

Incidence by age

Figure 1 depicts the estimated incidence of financial abuse in 2020, by age and gender.

Financial abuse does not discriminate by household income

While a slight skew towards lower income levels is evident when measuring incidence by household income, even higher income households see significant incidence rates, as shown in Figure 2 below (2016 data).

The cost of financial abuse

In their report, Deloitte estimated the cost of financial abuse in 2020 to be over $11 billion, a figure comprising:

• $5.7billion in direct costs to victims
  • $3.2b – income and savings withheld or controlled
  • $1.2b – refusal of perpetrator to contribute to household bills
  • $0.6b – refusal to contribute to shared expenses for children
  • $0.6b – liability for joint debt.
• $5.2 billion in costs to broader economy
  • $4.6b – lost productivity
  • $0.2b – mental health
  • $0.4b – deadweight losses.

The emotional and physical health burden is more telling

Distilling the cost of financial abuse down to dollars and cents overlooks the heavy emotional toll on its victims, and the disruption to their lives. For many victims, the scar tissue can last a lifetime.

These flow on impacts felt by victims can include:

• financial hardship and insecurity
• continued financial dependence on partner (inability to leave)
• damaged credit scores
• housing insecurity
• employment insecurity
• poor mental health and physical health.

Is financial abuse a growing problem?

What we now term financial abuse has of course been occurring for many, many years, although its recognition as a distinct form of domestic abuse is relatively recent, and for this reason historical data on incidence rates is scarce.

AFCA data certainly points to an increasing number of complaints involving financial abuse, as shown in Figure 3, below.

Experts agree that economic pressures, and societal and demographic trends make it highly likely that the incidence of financial abuse is indeed increasing.

Some of the key factors contributing to this likely increase include:

• Economic pressures
  • Cost of living pressures have resulted in significant increases in the cost of groceries, housing costs (rent/mortgage), energy and healthcare, creating a stronger incentive to manipulate and exploit vulnerable family members for financial gain.

• Growing population with CALD background
  • Increased migration is seeing more people of culturally and linguistically diverse (CALD) backgrounds in Australia. Language barriers and cultural norms and traditions amongst some migrant groups make them more susceptible to financial abuse.

• Ageing population
  • Older adults, especially those with declining cognitive abilities or who depend on family members for care, are more susceptible to exploitation
  • Family dynamics can also contribute, with adult children or relatives pressuring older Australians for money, property, or assets.

• Digitisation of financial services
  • The rise of digital and online financial systems has increased opportunities for exploitation through fraud and scams.
  • Vulnerable individuals, such as older adults, may lack confidence with technology, making them more susceptible to exploitation.

• Systemic issues with financial products and processes
  • Gaps in financial literacy and legal protections make some Australians more vulnerable. For instance, joint accounts, power of attorney arrangements, and informal lending agreements can be exploited.

• Generational Wealth Transfers
  • The intergenerational transfer of wealth, such as inheritances or property, creates opportunities for exploitation. Inheritance impatience or disputes within families often lead to financial abuse.

Inquiry submission – language and cultural enablers of financial abuse

Financial Counselling Australia told the Financial Abuse Inquiry about the “almost ubiquitous” dowry abuse in some cultures, giving testimony that, “of 24 newly migrated women attending a financial literacy day in Melbourne, 16 did not know whether they had a bank account or not.”^[11]

Inquiry submission – lack of tech confidence facilitates elder financial abuse

Elder Abuse Action Australia told the Inquiry the risk factors for older people to experience financial abuse have been exacerbated in recent years through the closure of bank branches and the resulting increased digitisation of banking and financial services. “Large numbers of older people report a lack of confidence in managing their finances in the online world and are thus granting account access or pin numbers to family members for assistance, a recent estimate found that approximately 25% of Australians over the age of 65 had provided either account access or a pin number to a family member for this reason.”^[12]

Inquiry submission – systemic issues with products and processes

The Council of Australian Life Insurers told the Inquiry that the guaranteed renewable nature of life insurance, and the primacy of the policy owner in making all decisions relating to a policy can limit the ability of insurers to terminate or change details of a policy in cases of suspected financial abuse.

For example, if a couple shares debts and decide to take out a joint life insurance policy, and they decide to separate or divorce,” there is no option for one to remove themselves, spilt the joint policy or cancel the policy without the consent from both people.” 

“As financial products and insurance policies, various legislative provisions require notifications to be given to policy owners in respect of the policies that they hold. Reconciling these requirements with the need to protect a victim-survivor’s location and other details from an alleged abuser, can cause particular difficulties in the case of joint and cross-policy ownership.”^1[13]

Submissions on behalf of superannuation funds and bodies noted similar difficulties relating to member communication.

Consultation Submission – FAAA calls out issues with non-standard identification

In its submission to an AUSTRAC consultation, the FAAA argued that financial and elder abuse should be taken into account when considering the use of non-standard identification documents.

“We are concerned about the risk of undue influence of Australians occurring in relation to their interactions with financial services. We encourage AUSTRAC to take an active interest in this area as part of its approach to financial inclusion and family and domestic violence. We note the government’s ongoing commitment to address financial abuse (particularly elder abuse) through the Attorney-General’s Department. AUSTRAC guidance may present an opportunity to support victims of financial abuse, including through the current consultation. Undue influence can occur under a variety of circumstances, and we agree this should be a consideration in instances where a person does not have access to standard documentation for identification verification prior to the provision of a designated service.”^[14]

Advisers have a key role – but lack a consistent framework

Referencing its own submission to the Financial Abuse Inquiry, FAAA CEO Sarah Abood noted that the financial advice profession lacks consistent protocols for handling suspected financial abuse, and there are significant barriers to effective collaboration due to privacy laws and insufficient whistleblower protections.

Abood told FAAA members^[15]:

“Financial advisers are uniquely positioned to detect signs of financial abuse due to their close relationships with clients and their families. Despite this, research conducted by the FAAA alongside members shows that there is no clear method of reporting or assisting clients who are subject to financial abuse.”

“Through clear guidance, training, and support, financial advisers can help protect clients and other family members from financial abuse and support them in regaining financial independence.”

The FAAA put forward seven key recommendations^[16] to help reduce the impact of financial abuse:

• Take action to raise public awareness of financial abuse.
• Create a central source of training, information and support for affected people, including the financial professionals who are the ‘frontline’ in identifying this abuse.
• Establish a hotline for consumers and service providers.
• Review the privacy and whistleblower protection laws to ensure relevant information can be safely shared, where financial abuse is suspected.
• National harmonisation of currently state-based estate planning laws.
• Establish a national register of Powers of Attorney.
• Develop a standard identification, reporting and escalation framework.

Recognising the red flags of financial abuse

While there is no definitive list of ‘red flags, financial advisers – by virtue of the length of client relationships, and the visibility they have of the client’s financial and personal circumstances – are better placed than most to recognise when financial abuse could be occurring.

Identifying changes in financial behaviour is critical for recognising potential financial abuse, particularly among vulnerable individuals. Signs of abuse often manifest as unusual or unexpected financial decisions. Examples include large or unexplained withdrawals, major transactions, or investments made without the usual involvement of an adviser. A sudden reluctance to discuss finances or share financial information with trusted individuals can also be a warning sign.

Other indicators include unexplained or unusually large gifts, often given to unexpected recipients, and abrupt changes to wills that conflict with previous intentions, such as disinheriting close family members or benefiting strangers.

Financial abuse can also involve someone moving into the victim’s home without contributing financially, or a third party quickly becoming overly involved in the victim’s life, potentially isolating them from friends and family.

Behavioural or health changes are another red flag. Victims may become withdrawn, depressed, anxious, or neglect personal care, further signalling vulnerability.

These patterns often occur behind closed doors, with abusers taking steps to hide their actions and motives. This makes it difficult to detect and address such issues.

Discussing these concerns with clients is also challenging due to sensitivity, cultural considerations, and family dynamics. Despite these difficulties, it is crucial to support at-risk individuals by identifying these signs early and taking appropriate steps to protect their financial well-being.

Knowing your client, not only in terms of their financial arrangements, but also their family situation and general patterns of behaviour, is critical to detecting even the slightest deviation from what would be considered normal.

Reporting suspected financial abuse

If there are red flags suggesting the client may be the victim of financial abuse, advisers should make the client aware and report the issue to the relevant providers and authorities, which may include the client’s bank/super fund, and, if in NSW or Tasmania, the police.

Conclusion

Financial abuse is a growing societal and consumer protection challenge, with far-reaching economic, emotional, and health impacts on victims. Financial Advisers are uniquely positioned to serve as the first line of defence against this abuse, yet systemic barriers and a lack of clear frameworks often hinder their efforts. To tackle financial abuse effectively, a multi-faceted approach is essential.

The FAAA has highlighted the significant role advisers play in detecting and addressing financial abuse. Their deep, long-standing client relationships allow them to spot red flags, such as unexplained financial decisions, sudden changes in wills, or unusual gifts. However, the profession faces challenges, including privacy laws that restrict information sharing and restrictive product features and processes.

Recommendations to empower advisers include establishing a standardised identification and reporting framework, creating a national register for Powers of Attorney, and harmonising estate planning laws across states. Additionally, raising public awareness, providing advisers with targeted training, and setting up dedicated hotlines for victims and professionals could significantly enhance the ability to combat financial abuse.

Ultimately, financial advisers must navigate sensitive family dynamics and cultural considerations while remaining vigilant for subtle deviations from a client’s usual behaviour. With proper guidance, training, and systemic reforms, they can act as trusted allies in safeguarding clients from exploitation and supporting them in regaining financial independence.

 

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References:
[1] https://rlc.org.au/news-and-media/news/more-600000-australians-experienced-financial-abuse-past-year
[2] https://www.abc.net.au/news/2024-04-04/parliamentary-inquiry-examine-role-banks-prevent-financial-abuse/103670636
[3] https://www.newcastle.edu.au/hippocampus/story/2024/the-bank-of-mum-and-dad
[4] https://www.commbank.com.au/content/dam/caas/newsroom/docs/Cost%20of%20financial%20abuse%20in%20Australia.pdf
[5] Ibid.
[6] https://www.abc.net.au/news/2020-08-15/coronavirus-financial-abuse-domestic-violence-money/12554234?nw=0&r=HtmlFragment
[7] https://www.commbank.com.au/content/dam/caas/newsroom/docs/Cost%20of%20financial%20abuse%20in%20Australia.pdf
[8] Ibid.
[9] https://research-repository.rmit.edu.au/ndownloader/files/50158380/1
[10] https://www.afca.org.au/media/1921/download
[11] https://www.financialcounsellingaustralia.org.au/docs/financial-abuse/
[12] https://www.aph.gov.au/DocumentStore.ashx?id=5e8e75a6-292a-48c0-b5fd-60e7b752a105&subId=758586
[13] https://financialnewswire.com.au/life-insurance/life-insurers-canvas-law-changes-to-address-financial-abuse/
[14] https://www.ifa.com.au/news/34969-faaa-highlights-role-of-advisers-in-stopping-financial-abuse
[15] Ibid.
[16] https://faaa.au/wp-content/uploads/2024/06/20240614-FAAA-submission-to-PJC-inquiry-into-financial-abuse.pdf