CPD: Ethics and financial abuse

Financial abuse is becoming more prevalent in Australian society. This article, proudly sponsored by GSFM, examines financial abuse in the context of an ethical financial advice practice.

A lot of people quite rightly consider financial abuse to be a malevolent form of elder abuse. However, it’s not just the elderly that fall prey to financial abuse, it can infiltrate all ages and socioeconomic groups.

In fact, financial abuse was identified as such a significant issue that in 2024, there was a formal Parliamentary Joint Committee, titled ‘Financial abuse: an insidious form of domestic violence’. The committee made 61 recommendations that call on the financial system, governments and key operators in the sector to make numerous changes to protect vulnerable Australians.

Of the 61 recommendations made by the Parliamentary Joint Committee, three are of particular interest to the advice sector:

• The government to undertake a review of the intersection between financial abuse and the super system, particularly in relation to SMSFs
• The SIS Act 1993 be amended to provide a mechanism so that an abuser can’t be a beneficiary of the account holder’s super death benefits
• The government is to undertake a review of all financial products and services so abusers can’t financially benefit from the death of their victims

At any time, you may have a client who is perpetrating financial abuse or is a victim of financial abuse. As a financial adviser, you’re generally well positioned to identify such abuse.

What is financial abuse?

Financial or economic abuse occurs when one person removes another’s access to money, manipulates their financial decisions or uses their money without consent. It can include exerting control over income, spending, bank accounts, bills and borrowing. A Deloitte-Commonwealth Bank report^[1] estimates that the financial toll on victims of financial abuse is estimated to be $5.7 billion.

Financial abuse often goes hand in hand with coercive control, the prevalence of which is increasing in Australia. Coercive control is often defined as a pattern of controlling behaviour, used by a perpetrator to establish and maintain control over another person. Coercive control is estimated to effect 3.6 million Australians (and, of those, 2.3 million experienced some form of economic abuse)<^[2].

Within the context of coercive control, financial abuse is a tactic to keep a person disempowered, by utilising strategies such as:

• placing one on a strict budget that barely covers the essentials such as food or clothes
• limiting access to bank accounts
• hiding financial resources
• preventing one from having a credit card
• rigorously monitoring what a person spends.

Financial abuse can take many forms, and the perpetrator could be a partner, a family member, carer, guardian or friend of the victim. It often occurs gradually as actions that take place over an extended time period.

Examples may include:

• Stealing or ‘borrowing’ a person’s money, debit or credit cards, assets or property without their knowledge or consent.
• Monitoring a person’s spending and not letting them choose how to spend their own money.
• Creating debts in another person’s name.
• Taking control of another person’s financial accounts and not providing information to them about their money or assets.
• Forging a signature or forcing a person to sign a document without disclosing the contents of that document.
• Using a vulnerable person’s money or assets knowing they are unlikely to complain because they are dependent on the other person for care and support.
• Pressuring a person to sign or change a will, power of attorney, enduring power of attorney or contract.
• Using an enduring power of attorney in a way that is not in the interests of the principal or is not consistent with the principal’s instructions (for example, using money from their account to pay for personal expenses).
• Pressuring a person to act as a co-borrower or guarantor for a loan.

Advice and financial abuse

Broad areas into which financial advice could be drawn are:

1. Economic and financial manipulation
   This can include a client leveraging a partner’s emotions, dependence, or traditional expectations about financial management to achieve financial gain or cause financial disadvantage for the partner. Examples include a perpetrator lying about their financial situation or misrepresenting their income to minimise their liability for child support payments.
2. Economic and financial entanglement
   This might include situations where a client uses their financial resources to keep the other partner in the relationship. Examples include creating joint debts and other liabilities that reduce their partner’s economic independence and ability to leave the relationship.
3. SMSFs and financial abuse
   The SMSF sector has been identified as one where there have been examples of circumstances where financial abuse had been overlaid with superannuation, where money had been moved into an SMSF and, ultimately, control had been taken over by one partner.

An SMSF can be manipulated by abusive partners or family members. For example, by removing someone’s access or coercing them into making decisions that are beneficial only to them. In such cases it can be very difficult to clawback. Unfortunately, the victim in such a case has no coverage under AFCA.

Recommendation 9 from the Parliamentary Joint Committee focused specifically on SMSFs as follows: Recognising the legitimate choice of Australians to have self-managed superannuation funds, the committee recommends that the Australian Government undertake a review of the intersection between financial abuse and the superannuation system, particularly in relation to self-managed superannuation funds; and ensure that the review is informed by the lived experience of victim-survivors^[3].

4. Elder financial abuse
   Elder abuse is 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^[4].

Financial elder abuse is defined as the misuse or theft of an older person’s money or assets and is the third most common form of elder abuse, after psychological abuse and neglect.

A key aspect of the definition is that elder financial abuse typically occurs in relationships where there is an expectation of trust; those with family members, friends, neighbours, carers and some professionals. Elder financial abuse involves a trusted person unethically exploiting a power of attorney or other legal mechanisms that give them control over an older person’s assets.

The risk factors that contribute to financial elder abuse are expected to increase in the next 20-30 years as Australia’s population continues to age. These factors include:

• • an ageing population, with people living longer and healthier lives
  • the largest intergenerational wealth transfer in history
  • inheritance impatience
  • growing economic pressures – the rising cost of living, housing costs and low wage growth.

Elder financial abuse can take many forms and can include repeated or one-off actions, threats or even a lack of action. In many cases, it may not be ‘technically’ illegal but is always unethical.

Some of the most common types of elder financial abuse include:

• • abusing a Power of Attorney where the attorney uses their power to take a person’s assets for themselves or for others
  • forcing an older person to sign over ownership of assets or make someone a beneficiary of their will
  • improper use of funds
  • theft
  • inheritance impatience, which occurs when adults feel entitled to an ageing relative’s assets and they take assets from them
  • coercing the older person to be guarantor for a home, business or investment loan.

Recognising potential financial abuse

Financial abuse isn’t always obvious. The well-dressed, friendly client who never appears with their partner, but always has the paperwork signed. The virtuous daughter looking after her ailing parents’ financial affairs. Financial abuse can take many forms, and a financial adviser is generally well-positioned to identify warning signs. Although some forms of financial abuse may be harder than others to detect, there may be discrepancies, patterns, or behaviours that suggest financial abuse.

Here are five scenarios of financial abuse you may be able to identify:

1. Unexplained changes in financial behaviour: a client who has been consistent with their saving and spending habits suddenly starts making large, unexplained withdrawals or taking on excessive debt. You might notice sudden purchases of luxury items or transfers to unfamiliar accounts, indicating possible financial manipulation or coercion by a third party.
2. Signs of undue influence from a third party: a client’s decisions start to consistently favour a particular individual – such as a family member or friend – who is exerting control over their financial choices. For example, a client might begin to give large sums of money or assets to someone close to them, or they might stop making decisions without consulting that individual. An adviser might spot a pattern of unusual joint accounts or legal changes in the client’s estate plan that seem out of character.
3. Excessive fees or charges: a client is being charged unusually high fees for services may indicate that a third party is taking advantage of the client’s vulnerability. You may be able to detect excessive or unnecessary charges that point to exploitation by an unscrupulous salesperson, family member, or carer.
4. Sudden reluctance to discuss financial matters: a previously transparent client suddenly becomes secretive or evasive about their finances. This could signal they are being financially manipulated or pressured by a third party. The adviser may notice that the client defers to someone else when discussing their accounts or financial matters, which could indicate that the client is under duress or coercion.
5. Coercion into risky investments: a client might be encouraged to invest in high-risk financial products or assets that are unsuitable for their financial goals or risk tolerance. This may occur when a third party, such as a partner or family member, pressures them into making decisions that disproportionately benefit the third party. A financial adviser might notice that the client is being pushed into making these risky moves, often accompanied by vague or misleading explanations.

Other signs of financial abuse include instances where:

• your client does not understand or is unaware of recently completed transactions
• your client expresses concern about missing funds, or missing personal or financial documents
• your client indicates they should have enough money to pay bills but are unable to do so for example, they complain of having no heating despite the fact they can afford it)
• you receive unusual requests such as adding an additional party/ies as a signing authority or giving such parties digital access to the client’s financial information
• changes are made to an address on an account by an authorised third party, or requests are made by the authorised third party to send correspondence to them
• there are changes in operation of client’s finances or unusual activity following the appointment of an enduring power of attorney.

Principles for good industry practice

Financial abuse is complex and can present challenging situations for you and your team members. Financial advisers play a key role in identifying and addressing financial abuse. To do so effectively and ethically, you must adhere to principles of good industry practice – such as the Code of Ethics (figure one) that protect the interests of clients, promote transparency and ensure that you and your peers act with integrity and professionalism. Each of these are actions that underpin the Code of Ethics.

Here are some key principles of good industry practice for financial advisers when identifying and dealing with financial abuse:

1. Client-centred approach

• Principle: always prioritise the best interests of the client, ensuring their financial well-being is at the forefront of decision-making.
• Application: Financial advisers should establish clear communication and trust with clients, making sure to understand their financial goals, needs, and preferences. They should be vigilant for signs of abuse and be prepared to intervene when there is any concern about exploitation, ensuring that clients’ decisions are made voluntarily and independently and with informed consent.

This will support you to meet the following standards:

2. Confidentiality and privacy

• Principle: Respect the privacy and confidentiality of the client’s financial information, sharing it only when necessary and with proper consent.
• Application: If a financial adviser suspects financial abuse, they must carefully balance confidentiality with the need to protect the client. In cases where there is a risk of harm, advisers may need to escalate concerns, but they should always do so in accordance with legal and ethical standards, such as reporting to relevant authorities or involving legal counsel.

This will support you to meet the following standard:

3. Clear communication and record-keeping

• Principle: Maintain clear, accurate and up-to-date records of all client interactions, including financial advice provided and any concerns regarding financial abuse.
• Application: The adviser should document all relevant conversations, financial transactions, and any signs of potential abuse observed. This documentation can be crucial if the situation requires escalation to regulators, legal authorities, or other professionals.

This will support you to meet the following standard:

4. Ongoing monitoring and review

• Principle: Conduct regular reviews and monitoring of the client’s financial situation to identify any changes that might indicate potential financial abuse.
• Application: Financial advisers should periodically review client accounts, transactions, and investments, looking for unusual patterns such as unexplained withdrawals, sudden changes in spending behaviour, or pressure from third parties. They should proactively address any irregularities by speaking with the client to understand their financial decisions.

This will support you to meet the following standards:

5. Detection of Red Flags

• Principle: Be alert to signs of financial abuse, such as sudden changes in a client’s financial behaviour, the involvement of a third party in decision making or reluctance to discuss finances.
• Application: Financial advisers should be trained to recognise the common signs of financial abuse, such as unexplained withdrawals, undue influence by family members or others, or the client showing confusion or distress about their financial situation. Early detection is crucial in preventing further harm.

This will support you to meet the following standard:

Financial advisers must uphold the highest ethical standards by acting with integrity, honesty, and transparency when dealing with clients and financial matters. If financial abuse is suspected, you should not be afraid to take the necessary steps, even if it means challenging the behaviour of a client’s family member or other third party who may be involved.

You can work collaboratively with other professionals, such as legal experts, social services and relevant authorities when financial abuse is suspected. You can also refer clients to appropriate external resources, such as legal counsel, financial abuse helplines or support organisations. Collaboration with other professionals ensures a coordinated response to address and prevent further harm.

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 ASIC and the Australian Financial Complaints Authority (AFCA) or its predecessor organisation. For each, potential breaches of the Code of Ethics are identified.

Case study one: Coercive control

Peter and Dee have been married for a number of years and Dee has, over the years, been convinced by Peter he is the ‘financial brains’ in the partnership and that he should have oversight of their financial affairs. Although Dee attended the first few meetings with Jake, when Peter suggested she ‘not bother’, she went along with it. However, according to all records, both Peter and Dee were Jake’s clients.

They have a financial adviser Jake, who went to school with Peter and was best man at the couple’s wedding. When Peter sees him with paperwork signed by Dee, he does not question it. Two events did present as red flags to Jake, these were:

1. The couple’s super accounts were closed and the money used to establish an SMSF.
2. Peter withdrew all possible equity from their home and invested it in a property development in which Jake had an interest.

Jake asked if Dee knew and was happy about the situation and took his friend’s word for it that she was. While Dee had signed the paperwork, she was not informed as to the nature of the contents, nor did she read it. She was happy to accept Peter’s explanation.

A year later the marriage broke down. All assets except the family home – which was mortgaged as far as possible – were in Peter’s name. The equity that had been withdrawn from the home was tied up in an illiquid business and the SMSF made it difficult to split and required many resources and legal hours to get Dee her share. Jake had chosen to ignore the red flags because he knew Peter and didn’t think he’d do the wrong thing by Dee.

By ignoring the red flags, Jake potentially breached the following standards in the Code of Ethics.

Case study two: Elder financial abuse via misuse of POA

Elizabeth is in her early 80s and a client of ACME Financial Advice. In early 2018, Elizabeth’s son and daughter established a joint EPOA should their mother require assistance and stewardship in her later years. Elizabeth’s financial adviser Christian is aware of the POA and has met with both children.

Despite a recent stroke, Elizabeth’s mental acuity remains strong. However, she’s no longer able to drive and finds other forms of travel difficult. As a result, her daughter Sian has become her default carer. Sian has moved from full time to part time work so she can care for her mother.

Sian contacted Christian and asked him to redeem a managed fund investment valued at $65,000. She explained that it would be used to make some modifications to Elizabeth’s home to make it safer and more comfortable for her to continue to live in her own home.

Christian called Elizabeth at a time he knew Sian would be working. He wanted to ensure that Elizabeth was aware of this request, its purpose and quantum. Elizabeth was aware of the building works and had the quotes to hand. It transpired that the building works had been quoted at $50,000. Sian had intended to keep the remaining $15,000 as ‘payment’ for her services as a carer but without her mother’s knowledge or approval. Christian made a file note of this issue in case a similar situation arose again at a time he 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 his actions, Christian acted in Elizabeth’s best interests and did not breach the Code of Ethics. However, had he simply actioned Sian’s request, he would have potentially breached the following standards:

Case study three: Undue influence

Mary is a career woman who, as a client of David at ACME Finance, has amassed a significant nestegg over their 15-year business relationship. As someone who had not married or had children, David was aware of Mary’s goals to retire early at 55 and spend 2-3 years travelling before moving to the coast. Mary had three more years before her planned retirement.

At their annual financial review meeting, David noticed some changes in Mary’s behaviour and financial decisions that raised red flags. At the meeting, Mary introduced David to Jason, a new man in her life who had recently moved in with her. David was surprised that Mary seemed to depend on Jason’s input regarding financial decisions, which was a sharp contrast to the independent woman David had known for years.

David noticed several red flags:

• Mary had made several large withdrawals and transfers over the past six months, which were not consistent with her usual spending patterns. In one instance, she transferred $30,000 from her savings account to a joint account she had opened with Jason. This transfer was made without any prior discussion with David, and it raised questions about the necessity of such a move.
• David noticed that Mary had opened a joint savings account with Jason, something she had never done before. This was especially concerning because Mary had always kept her finances separate and had been firm about maintaining control over her assets. David asked Mary about the decision, and she mentioned that Jason “suggested it would be easier to manage her finances together.” However, David was concerned that Jason might be exerting undue influence, as Mary had never previously considered joint accounts in prior relationships.
• In reviewing Mary’s estate planning documents, David noticed that she had recently changed her will to leave a significant portion of her assets to Jason, who was now named as the primary beneficiary. This was unusual, as Mary had never previously indicated such an intention, and she had often expressed a desire to leave her assets to charity and a few close friends. When David enquired further, Mary became defensive and told him that Jason had advised her to make those changes, claiming it would help simplify matters.
• In the past Mary was always an active participant in her financial planning. However, during their recent meeting, she seemed reluctant to make decisions without Jason’s approval. When David suggested an adjustment to her investment portfolio, Mary hesitated and deferred to Jason. This shift in behaviour was alarming to David, as it was clear that Mary’s financial autonomy was being undermined.

Because of his concerns, David took the following actions:

• He arranged a separate meeting with Mary, without Jason’s presence, to discuss her financial decisions and ensure that she was making them freely and independently. During this conversation, David gently asked Mary about her comfort level with the recent changes and her reasons for trusting Jason with her financial matters. Mary revealed that she felt increasingly dependent on Jason for support as she didn’t want to retire alone; however, she admitted that she wasn’t fully comfortable with some of the decisions Jason had made on her behalf.
• He reassured Mary that she had the right to make decisions about her finances independently and that she should feel empowered to do so. He suggested that Mary review her financial accounts and estate plan with an objective third party, such as a lawyer, to ensure that her wishes were being accurately reflected and that she was not being unduly influenced by Jason or anyone else.
• Concerned that Mary might be vulnerable to financial exploitation, David recommended that she seek assistance from a local financial abuse support service. This service could help Mary understand her rights and provide her with resources for protecting her assets and making decisions free from coercion.
• After his conversation with Mary, David referred her to a trusted estate planning lawyer to review her will and ensure that any changes were made voluntarily and without undue influence.

David’s actions put Mary front and centre, and he upheld the Code of Ethics. Had he not followed up his concerns, he would have potentially breached the following standards:

When it comes to identifying and helping clients manage financial abuse, advisers play a crucial role, serving as a frontline defence against exploitation. Your expertise in financial matters and close relationships with clients means you are uniquely positioned to recognise red flags.

By remaining vigilant, educating clients and following appropriate reporting protocols, you can help protect vulnerable individuals from financial harm. Your proactive involvement not only safeguards clients’ financial well-being but also reinforces trust and integrity within the financial advice profession.

 

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Notes:
[1] The cost of financial abuse in Australia, Commonwealth Bank of Australia & Deloitte Access Economics, 2022
[2] Australian Institute of Health and Welfare, Coercive Control, updated 19 July 2024
[3] Parliamentary Joint Committee on Corporations and Financial Services, Financial abuse: an insidious form of domestic violence, 2024
[4] World Health Organisation, 2022