David Locke

The Australian Financial Complaints Authority (AFCA) is concerned by a rise in complaints involving financial difficulty, especially lenders’ handling of customer requests for hardship assistance.

Complaints involving financial difficulty, a category that includes disputes over hardship assistance, rose 25 per cent in 2023, the financial sector ombudsman service reported today. Of the 5,396 complaints, a third related to home loans.

“We are concerned about the increase in complaints about financial hardship and about the practices of some lenders,” AFCA’s Chief Ombudsman and Chief Executive Officer, David Locke, said. “We urge all lenders to identify hardship early and to ensure they provide genuine consideration to a customer’s request for hardship assistance.”

Given the challenging economic environment, AFCA was not surprised by the increase in consumers seeking hardship assistance, Mr Locke said. “Lenders were preparing for this too and we acknowledge the investments some have made in specialist hardship teams and better processes. But the rise in complaints tells us there is still work to do.”

He said it was concerning that more than half of financial difficulty complaints to AFCA in 2023 were about a lender’s failure to respond to a request for hardship assistance. This is particularly pronounced for smaller lenders and Buy Now Pay Later (BNPL) providers.

“These are not complaints about what the lender’s decision was, but consumers saying there was no response at all. Failure to respond to such a request is a breach of the lender’s obligations and there is no excuse for this,” he said.

AFCA was also seeing complaints where lenders had provided a standardised, or “cookie cutter”, response that did not consider the customer’s individual circumstances. “Care needs to be taken with automated processes,” he added. “Lenders are required to give genuine consideration to hardship requests.”

Under the National Credit Code^[1] and the Banking Code of Practice^[2], banks are required to work with customers to find a sustainable solution to financial hardship, and to do that by considering their individual circumstances.

AFCA’s Lead Ombudsman, Banking and Finance, Natalie Cameron, said other issues AFCA was seeing included lenders issuing default notices to consumers who had agreed to repayment arrangements, lenders placing unnecessary barriers to financial counsellors assisting consumers, and debt recovery action being taken while a matter is still before AFCA, which is not permitted.

Ms Cameron said all lenders should ensure they provide appropriate assistance to people experiencing vulnerability. “Vulnerable complainants are not always identified or given the care required,” she said. “Sometimes they are simply not in a position to navigate the process and provide the required information in the requested format.”

The Australian Securities and Investments Commission (ASIC) has been undertaking a review of hardship applications^[3] and wrote to lenders last year calling on them to make sure they supported customers appropriately.

Breakout – What to do

AFCA’s Lead Ombudsman, Banking and Finance, Natalie Cameron, says borrowers should contact their lender to request hardship assistance as soon as possible if they are starting to find themselves in financial difficulty.

“Don’t wait until overdue repayments and arrears are already accumulating. Act quickly so as many options as possible remain open to you,” she says. “We’d also encourage people to seek help from a free financial counsellor sooner rather than later.”

“Borrowers who are not happy with the response to a hardship request can make an internal complaint to their lender to have the decision reviewed. The bank generally has 30 days to respond to a complaint.

“If they remain unhappy after the complaint has been considered by the lender, or the complaint hasn’t been considered in time, they can access AFCA’s free and impartial dispute resolution service.”

———

Notes:
[1]  National Credit Code
[2] Banking Code of Practice
[3] Review of hardship applications

The post AFCA worried by rising complaints over handling of hardship appeared first on AdviserVoice.

The AFCA board confirmed his appointment after a competitive selection process. Mr Singh had been acting in the role.

“Shail brings deep and diverse experience to this role, having worked in dispute resolution for over a decade and having been a financial planner himself,” AFCA’s Deputy Chief Ombudsman Dr June Smith said.

“He is a respected specialist in investments and advice complaints, in areas such as financial planning, derivatives, managed funds, timeshare, cryptocurrency and stockbroking.

“Shail has forged strong relationships with key stakeholders, among other things initiating a financial advice liaison group and a cryptocurrency liaison group,” Dr Smith noted.

Mr Singh is a lawyer by profession and worked both as an in-house legal counsel and for regulators including WorkSafe Victoria and the Medical Practitioners Board of Victoria. He then trained and worked as a financial planner before becoming a case manager with an AFCA predecessor, the Financial Ombudsman Scheme, in 2010. He was appointed as an Ombudsman when AFCA opened its doors in November 2018, becoming Senior Ombudsman, Investments and Advice, in 2021.

He stepped in as acting Lead Ombudsman in January 2022 when his predecessor, Natalie Cameron, became Lead Ombudsman for Banking and Finance.

“I’m extremely excited to be appointed to this role,” Mr Singh said. “I’m looking forward to continuing my work with firms to prevent disputes, and to being involved in improving our systems and processes to deliver an even better dispute resolution service that is transparent, timely, efficient and above all fair.”

AFCA is the ombudsman service for the financial services sector, handling complaints in four areas: banking and finance, investments and advice, insurance, and superannuation. In addition, a dedicated small business ombudsman oversees complaints from small business.

The five lead ombudsmen are responsible for AFCA’s approach to decision making in their respective areas. Together they head teams totalling more than 100 ombudsmen and adjudication panel members. AFCA’s other Lead Ombudsmen are Natalie Cameron (Banking and Finance), Suanne Russell (Small Business), Emma Curtis (Insurance) and Heather Gray (Superannuation).

AFCA is on track to register about 100,000 complaints in the 2022-23 financial year and has secured $1 billion for complainants since inception in November 2018.

The post Shail Singh named AFCA’s Lead Ombudsman, Investments and Advice appeared first on AdviserVoice.

Natalie was appointed after an extensive executive recruitment process and moves into the position from her current appointment as Lead Ombudsman for Investments and Advice at AFCA. She has been acting in the Banking and Finance role since January.

“Natalie brings to this role a wealth of experience in law, financial services and dispute resolution. She has already made an outstanding contribution as a Lead Ombudsman, both in Investments and Advice and as Acting Lead Ombudsman in Banking and Finance,” AFCA’s Chief Ombudsman and CEO, David Locke, said.

“Natalie has a passion for access to justice and delivering fair outcomes for both consumers and financial firms. She is a highly capable lawyer and she has an open and collaborative leadership style. She has already demonstrated that she can build strong relationships with both industry bodies and consumer organisations, and that she can make sound, impartial decisions without fear or favour.”

Lead Ombudsman for Banking and Finance is a key national role, with more than half of the 70,000-plus complaints AFCA registers each year coming from this sector, Mr Locke said. “Natalie will have the opportunity to influence practice by working with banks and financial institutions in areas such as financial difficulty and vulnerable customers,” he said.

Natalie Cameron said: “It is an honour to continue AFCA’s critical work helping consumers and financial firms to resolve disputes. Finding ways to bring fair and efficient resolution to disputes could not be more important in a changing banking and finance environment.

“As well as leading AFCA’s approach to complaints handling and decision-making in banking and finance, I look forward to ongoing engagement with the sector to help build on their positive work to prevent complaints arising.”

Natalie takes up the permanent appointment effective immediately.

Meanwhile, Shail Singh will continue as Acting Lead Ombudsman, Investments and Advice, for the coming 12 months, having taken on this role earlier this year, Deputy Chief Ombudsman Dr June Smith said.

“Shail will continue acting in this role in a year when we are likely to see the implementation of a compensation scheme of last resort and the outcomes of the Quality of Advice review.”

AFCA has five Lead Ombudsmen, in Banking and Finance, Investments and Advice, Insurance, Small Business and Superannuation. “Their leadership underpins our independent, fair and consistent approach to the resolution of complaints between consumers and financial firms,” Dr Smith said.

The post Natalie Cameron named Lead Ombudsman, Banking and Finance appeared first on AdviserVoice.

Natalie Cameron

Consumers who believe they’ve been given inappropriate advice or advice not in their best interest account for one in four Investments and Advice complaints but most of these complaints are resolved by agreement or do not go any further, data released by the Australian Financial Complaints Authority (AFCA) shows.

Since AFCA’s inception in November 2018, it has received 11,355 Investments and Advice complaints. The ombudsman service says 2,788 of these fell into two categories that could be regarded as “know your client” issues: claims of inappropriate advice or failure to act in the client’s best interest.

Of the 2,252 complaints that had been closed, 40 per cent were resolved by agreement at an early stage, after AFCA brought the parties together, the data shows. A further 24 per cent were assessed as falling outside AFCA’s Rules, meaning they went no further.

Only 15 per cent of complaints went on to be the subject of a decision in favour of the complainant at the “preliminary assessment” or final determination phase.

The bottom line is that 333 complaints of this type – just 3 per cent of all Investments and Advice complaints since AFCA opened its doors – resulted in a decision against a financial adviser, Lead Ombudsman for Investments and Advice, Natalie Cameron, said.

“The average adviser has little chance of ever having an AFCA decision against them,” Ms Cameron said, noting though that AFCA’s work helps the industry by tackling the behaviour of the small number of advisers who harm the sector’s reputation.

“At AFCA, we take every opportunity to secure a resolution that’s fair for both parties,” she said. “If we can bring the parties together so they reach agreement themselves, then that’s the ideal outcome for us.”

AFCA uses both informal and formal methods to secure resolution of a dispute. First, it refers complaints back to the financial firm to see if the firm can resolve the issue directly. AFCA then seeks to help the parties reach agreement through negotiation and conciliation. Next, it can provide a preliminary assessment of the merits of a complaint for the parties to consider. If there is still no resolution, the final step is for AFCA to make a binding decision, also known as a determination.

While most advisers get it right most of the time, there are still lessons to be learned from the cases handled by AFCA.

AFCA’s Senior Ombudsman for Investments and Advice, Shail Singh, said it was always good to see documents that had been tailored to a client’s financial literacy – such as clear, concise and effective statements of advice that use everyday language in setting out goals and strategy.

He recommends checking that all templated forms and documents are appropriate to the client in this way.

“It’s difficult for us to be convinced an adviser has selected the right strategies and financial products for a client, or even if they have, that they have adequately conveyed this to a client if documents contain pro forma jargon, complex concepts or excessive amounts of irrelevant material,” he said.

Mr Singh also highlighted the value of being able to provide documents created at the same time as advice when addressing a complaint. “These usually carry more weight than later recollections of what was said or done,” he says.

AFCA shares complaints data publicly via the AFCA Datacube.

The post Most ‘know your client’ issues resolved early: AFCA appeared first on AdviserVoice.

A 2020 study of elder abuse observed financial abuse increased substantially over the seven year period from 2012-2019.

The COVID-19 pandemic not only caused older Australians to worry about their health and finances, it reportedly increased the incidence of elder abuse. This includes an increase in reported financial elder abuse, something financial advisers should be aware of. In this ethics article, sponsored by GSFM Pty Ltd, elder abuse and the ethical ramification for advisers is discussed.

A 2020 study^[1] of elder abuse observed financial abuse increased substantially over the seven year period from 2012-2019; by 2019, it was reported in 62 percent of elder abuse cases. That COVID-19 has exacerbated this situation was reinforced by NSW ageing and disability commissioner, Robert Fitzgerald, who earlier this year said COVID has ‘intensified the risk factors for elder abuse’.

COVID appeared at a time when, what’s been described as a ‘tsunami’ of baby boomers, reached retirement age. This cohort can expect to live 20-30 years post retirement, time they need to fund. At the same time, the housing affordability crisis sees their children and grandchildren struggling to get onto the property ladder and, where they succeed, grappling with huge mortgages. In numerous instances, COVID has resulted in unemployment, reduced employment or businesses being financially impacted. In all, a time of financial stress.

This scenario creates an environment in which numerous studies into elder abuse suggest may lead to an increased incidence of elder abuse. Adult children may need to move in with parents, businesses close, some unlikely to return. The cash strapped taking advantage of those with more is not a new story, but in such an environment, it’s one which advisers need to keep in mind when dealing with their older clients.

Elder abuse explained

The World Health Organisation (WHO) 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…and constitutes a violation of human rights that may cause serious loss of dignity and respect.”

Elder abuse can take many different forms and victims are often subjected to more than one type. The main forms are physical, emotional, sexual, financial, social and neglect. Financial abuse, along with psychological abuse, are the two most common forms of elder abuse in Australia.

By the numbers

The age of victims varies. Analysis of data collected by Senior Rights Victoria from 2012-2019 found that:

• 38% of clients were in their 70s
• 29% of clients were in their 80s
• 25% of clients were in their 60s

At the same time, women consistently accounted for 72% of victims. The report noted that as this is significantly out of proportion to the gender distribution of the Victorian population, a gendered element to elder abuse is indicated.

What factors contribute to elder abuse?

In most cases of elder abuse, the victim knows the perpetrator. In fact, it is often perpetrated by a trusted person. Some of the risk factors for elder abuse include^[1]:

• the existence of family conflict (44 percent) was the most common risk factor experienced by older clients and rose over time
• the second most common risk factor was co-habitation with the perpetrator (35 percent), though this declined over the seven year period covered by the report
• in almost 29 percent of cases, the older person was frail or in poor physical health, while a similar proportion felt they did not have enough information about their rights

Other risk factors include:

• situations where the carer experiences high levels of stress: financial difficulties, ill health, unemployment or battles with substance abuse
• the carer or family member finds it stressful, or resents, looking after the older person
• the carer or family member does not get enough support or respite
• cognitive impairment, such as dementia, or physical confinement means the older person is less able to stop or report the abuse
• social isolation as a result of location, cultural or language barriers, or health issues
• the elderly person is dependent on the perpetrator for support; this could be physical, emotional, social or financial support
• a history of violence within the family, particularly where the older person was an abusive parent towards their adult child
• the carer or family member or the older person (or both) has a mental health condition.

Who are the likely perpetrators?

Although most abuse is committed by men (54 percent), the incidence of abuse by women (46 percent) is rising. In 91 percent of the cases investigated by Seniors Rights Victoria, the abuser was a family member of the older person.

As illustrated in figure two, sons are more likely than daughters to perpetrate elder abuse; the research also found that sons who lived with the older person reportedly committed more abuse than those who didn’t. Conversely, daughters who lived with the older person reportedly committed less abuse than daughters who live elsewhere. Figure three provides a gender breakdown of perpetrators by abuse type.

What drives elder abuse?

There are a range of factors that drive elder abuse. An increase in mental health issues, family members with gambling or substance abuse problems, or family members facing financial stress.

Social isolation

According to a 2018 study by Uniting Care^[2], social isolation was found to be a high risk factor for elder abuse, something borne out by later studies both in Australia and overseas. Our elders are at greater risk of social isolation due to a range of physical, social and structural factors; these can increase their vulnerability and decrease the likelihood of the abuse being reported.

In some instances, social isolation may be caused by age or mobility. In others, it can result from deliberate actions by the family member or carer to segregate the older person from others.

The study found that in some situations, the perpetrator may be the only social connection that the older person has. Therefore, despite the abuse, the victim may be reluctant to take action that may jeopardise the relationship.

Economic factors

A range of economic factors might increase the risk of elder abuse, especially financial abuse. There is a real risk this has been exacerbated by COVID-19, as the older people became increasingly reliant on others for day to day assistance. At the same time, a large number of people experienced financial hardship and for some, that continues.

AFCA’s Lead Ombudsman for Investments and Advice, Natalie Cameron commented, “Financial elder abuse is an area of increasing concern in an ageing population and with older people more dependent on others for assistance during the COVID-19 pandemic.”

Risk factors for elder abuse based on economic factors can include unemployed children or grandchildren, the high cost of housing and rising education costs.  A circumstantial red flag for advisers in the current environment is that financial stress factors are particularly high given that many small businesses have been impacted by COVID lockdowns and border closures.

Financial pressures can result in older people being coerced by adult children or grandchildren to help them. This assistance may take the form of:

• rent free accommodation
• a loan
• financial support for an ailing business or one temporarily closed because of COVID
• to fund or contribute towards a home deposit
• to assist with mortgage repayments once the COVID mortgage ‘holiday’ ended

Some older Australians have been coerced to purchase a home for family members and, in some cases, convinced to sign over their own home so it can be used as collateral for a mortgage.

Intergenerational wealth transfer

The transfer of wealth from one generation to another is a common expectation and has paid out mortgages, boosted investment funds or covered school or university fees for generations of Australians. The extended life expectancy we now enjoy has changed this.

Longevity impacts intergenerational wealth transfer in several ways. Firstly, retirees need to fund more years in retirement, eating into the funds that were once earmarked for their children and grandchildren. Secondly, the notion of ‘spending the kids inheritance’ and living the best life sees many in early retirement fulfilling long held dreams. Finally, for many beneficiaries, any inheritance comes too late, past the time when financial stressors are at their highest. 

Mental health issues

Seniors Rights Victoria discovered found a 17 percent increase in the proportion of perpetrators experiencing mental illness between 2012 and 2019. By the latter date, 39 percent of perpetrators of elder abuse were experiencing mental health issues. Mental health issues have also proliferated during COVID-19. Lockdowns and social distancing measures coupled with the sudden loss of employment and social interaction has negatively impacted the mental health of many Australians.

What are the signs of elder abuse?

Signs that an older person may be abused include^[3]:

• malnutrition and dehydration
• poor personal hygiene or dirty clothes
• untreated medical problems
• fearful, anxious, withdrawn or cowed behaviour
• unexplained and frequent injuries such as black eyes and broken bones
• unexpected and sudden changes in financial status.

It’s important to note that some older people experiencing abuse may not seek help. This can result from a number of reasons, including:

• feelings of guilt and shame
• fear of retaliation
• fear of damaging family relationships
• fear that seeking help will lead to living in a nursing home or institution
• lack of physical or mental capacity
• lack of knowledge about the available sources of help.

Financial abuse

Financial abuse may not leave physical scars, but it can have ramifications that affect the victim for the rest of their life. It can also lead to a breakdown in family relationships. While financial exploitation within families is not new, it’s the second most common form of elder abuse.

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

The definition includes acts perpetrated by people known to and trusted by the victim, as well as acts committed by strangers and by institutions. The elderly are especially vulnerable to financial abuse. Research has repeatedly shown family and carers on whom the victim depends for social contact and daily care are the most likely perpetrators of financial elder abuse.

AFCA describes improper conduct in relation to financial abuse as:

• an abuse of trust, where a trusted third party persuades the elderly person to act in a way contrary to their interests
• conduct resulting in personal gain for a third party in a formal position of trust giving rise to fiduciary duties, such as the holder of a Power or Attorney (POA)

Illegal or improper use of an older person’s funds or resources might include:

• mismanagement of their funds or investments
• theft of money or possessions
• taking control of their finances without permission
• taking control of their finances with permission but misusing the funds
• pressuring relatives for early inheritances
• pressuring the older person to accept lower-cost or lower-quality services, such as aged care, to preserve more financial resources to be available as an inheritance
• carrying out unnecessary work or overcharging for services
• living with the older person and refusing to contribute money for expenses
• forging or forcing an older person’s signature
• promising long-term care in exchange for money or property and not providing the promised care
• convincing an older person to be a guarantor for a loan or business where the benefit of the loan is for someone else
• 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.

Although POAs are often used to protect older people, particularly those experiencing cognitive declines, cases of financial elder abuse have included the misuse of control using an POA.

Warning signs of financial abuse

Financial abuse may not be immediately obvious, and perpetrator generally seeks to cover up their wrong-doing for as long as possible. The victim may be unaware of the abuse and, depending on the relationship with the perpetrator, unwilling to address it.

Accordingly, it’s essential that financial advisers can identify the warning signs. Some forms of abuse will be patently obvious, while others may be far more subtle. Trust your intuition – if you have any suspicions, you should review the situation.

Some warning signs that a client may be experiencing financial abuse include:

• they have allowed someone else to control their access to bank accounts, credit and debit cards or other money; where the client isn’t regularly on top of the transaction history is a major red flag
• unusual activity in your client’s bank accounts, including large, frequent or unexplained withdrawals
• your client makes withdrawals or transfers between accounts that they cannot explain
• your client suddenly opens a join account with a family member or other person
• family members move in, even if to ostensibly ‘care’ for the client, but is not contributing financially; where this is causing the client’s expenses to increase markedly, or negatively impacting their standard of living, should be of concern
• your client’s bills haven’t been paid, even though someone else is supposed to be doing this for them
• financial statements are redirected and no longer received by your client
• your client is pressured to invest in a private business or scheme with returns that sound too good to be true
• your client guarantees or takes out a loan for a family member
• you client has to get permission from a third party to spend their own money
• someone is selling (or threatening to sell) your client’s property without their permission
• your client sells their property and uses the funds to ‘buy’ into a child’s property or granny flat on site without any contractual arrangement
• your client makes a new will or appoints a POA without informing you
• a carer, relative or friend suddenly begins conducting financial transactions on behalf of your client without proper documentation
• the client loses confidence in their ability to make financial decisions and indicates this is a result of being made to feel incompetent by others.

According to AFCA^[4], financial elder abuse often takes the form of misuse of, or theft from, a bank account or other financial services product. The regulatory body says financial firm employees may be in the best, and sometimes the only, position to recognise financial elder abuse as it occurs and that employees of such businesses should ‘trust their instincts’.

Responsibilities of financial advisers

The FSC^[5] also 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.

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 unaware or in denial of the abuse. 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 conflicts of interest between clients, particularly those situations where two generations of a family are clients
• avoid contributing to the perpetration of unlawful acts
• ensure all clients are well informed; as clients age, ensure they understand what constitutes elder abuse and know that there are steps they can take to avoid or report it
• ensure your client understands the 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.

According to AFCA’s Lead Ombudsman for Investments and Advice, Natalie Cameron, the complaints AFCA sees around elder abuse generally involve banking transactions and claims that a financial firm or its employees should have recognised financial abuse was occurring. She suggests financial advisers to look out for the sorts of ‘red flags’ AFCA has identified in its work with banks.

These red flags potentially visible to financial firm employees include that the elderly person may:

• engage in financial activity that is unusual, erratic or uncharacteristic
• be accompanied by a new acquaintance to make a large or unusual withdrawal of cash
• be accompanied by a family member or other person who seems to coerce them into making transactions
• transactions by a caregiver that do not seem to be in the interests of the customer, for example a holiday or a car
• not be allowed to speak for themselves, or the other party does all the talking
• start to appear fearful (particularly of the person accompanying them) or withdrawn
• adding a person to the account followed by the balance being transferred out
• have large withdrawals or transfers made on behalf of the elderly person without prior direct contact from them
• not understand or be aware of recently completed transactions
• give implausible explanations about or appear confused about what they are doing with their money
• suddenly register for internet banking when prior financial activity has been branch based and there has been no preliminary contact with the financial firm
• have unpaid bills that they should be able to afford to pay – e.g. complain of having no heating even though they can afford to have it, or that they are being evicted
• be concerned about missing funds or financial service related documents
• indicate that mail, such as account statements, is no longer being delivered to their home.

More often than not, one of these factors has been present in the complaints reviewed by AFCA. While many of these scenarios are more pertinent to banking than financial advice practices, they are indicative of the red flags you and your staff should be aware of.

Financial abuse includes criminal conduct such as fraud, theft or obtaining financial advantage by deception. However, according to AFCA, what occurs may be improper conduct rather than illegal conduct because the act or omission may not be deliberately abusive or malicious, or there may be a relationship of trust or dependence that clouds the question of consent.

Therefore, AFCA takes the view that conduct will be improper when it involves intimidation, deceit, coercion, emotional manipulation, physical or psychological abuse, undue influence or empty promises. To be improper, the conduct does not need to involve malicious intent and an abuser may have a mistaken sense of entitlement.

According to the FSC, financial advisers are uniquely positioned to identify financial decisions that are not in the best interests of the client and may suggest suspicious activity. Examples include:

• an agent, child or friend speaking for the elderly client, or suppressing their comments, during a meeting
• an elderly client appearing intimidated by the mention of a particular individual
• an elderly client deciding to loan funds to a friend or relative where the reasons for the loan cannot be explained and is not documented or verified adequately
• service providers in a position of trust or dominance convincing elderly clients to make unnecessary financial commitments
• organisations contracted to assist the elderly client charging excessive fees, fees for services not provided, or providing unnecessary services.

Misuse of POAs

The FSC notes that the misuse of POAs is among the most common ways in which elder financial abuse is committed. A POA appointment makes it easier for a perpetrator to engage in elder financial abuse, particularly those situations where adult children seek to deprive an elderly parent of their access to or use of financial resources, with the intention of preserving assets that they are likely to inherit when the elderly parent passes away.

Improper transactions in relation to an elderly parent’s assets are also commonly committed by adult children who have a sense of entitlement to those assets due to their role as a primary caregiver to their parent. Such motivations comprise the majority of reported elder financial abuse cases.

Best practice guidelines

AFCA shares its insights with the industry and supports initiatives like the FSC Guide to the Prevention of Elder Financial Abuse, which draws on AFCA’s work. Natalie Cameron, AFCA’s Lead Ombudsman for Investments and Advice, encourages advisers to look at the guide, including the information on what to look out for and practical steps to take. She also points to the FASEA Code of Ethics obligations in this area ^[6].

The following standards are those specified by AFCA. Although 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 client.
• 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:

• ehe 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.

“When determining complaints, AFCA decision makers must do what is fair in all the circumstances and have regard to legal principles, applicable industry codes or guidance and good industry practice,” said AFCA’s Lead Ombudsman for Investments and Advice, Natalie Cameron.

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: Changes to superannuation drawdown

Joyce, 83, is a widow who lives independently on the NSW mid-coast. She has two daughters that help her around the home and plans to remain for as long a period as possible. She and her husband Eric had been clients of Mid Coast Planning for many years. She continued twice-yearly meetings with her adviser, Christine, although her financials were ticking along nicely and allowed her to have a comfortable lifestyle.

On her most recent visit to Christine, Joyce was accompanied by her daughter Rebecca. Christine noticed that Joyce was more reserved than usual in Rebecca’s presence and seemed somewhat stressed. Joyce instructed Christine to enact a part commutation of her account based pension to drawdown a not insignificant lump sum, one that would severely reduce her regular income. This request was at odds with the plans adviser and client had discussed previously and did not seem to be in Joyce’s best interests.

Christine was aware that such an action could allow Rebecca to access Joyce’s superannuation savings. She told them it was a two part process and could not be immediately actioned without her making contact with the super fund. She explained the potential ramifications of the action and suggested Joyce return in a day or two. Rebecca explained that she worked part time and could only come to an appointment in the mornings. Christine then made an afternoon appointment so she could speak to Joyce alone.

At the second meeting, Joyce explained that Rebecca had separated from her husband and the superannuation money was for her to set herself up in a new home. Rebecca knew she’d be the beneficiary of Joyce’s estate and had convinced her mother it was better to have the money earlier.

Christine explained how that would impact Joyce’s income and potentially leave her without adequate funds, particularly if she needed aged care and wanted to have greater choice about home care or residential aged care. Joyce agreed it was not in her best interests to make the change and instructed Christine not to act.

Christine did the right thing. She recognised that Joyce was acting in an uncharacteristic manner, and that her request was not in line with earlier discussions. Had she gone ahead with Joyce’s original instruction without seeing her the second time, and without the potential influence of her daughter, she would potentially have breached the following FASEA standards:

Case study two: The guardian

John is in his early 90s and a client of ABC Finance. A few years ago, his investment banker son Simon established an enduring power of attorney and guardianship should his father require stewardship in his later years. His financial adviser Doug is aware of this and met Simon with John at several meetings spanning 3-4 years. Although frail, John has always displayed great mental acuity.

Because of Simon’s financial services background, he has taken a great interest in his father’s financial affairs; Simon and Doug often talk money when they meet.

Five years after the guardianship was established, Simon contacted Doug to transfer a significant sum of money from an investment account John held, to one in his own name. He told Doug he was going to add the money to a sum of his own and invest it in a limited opportunity, one which would yield a good return for John. Doug accepted Simon’s explanation and actioned the transfer.

It transpired that the funds were used to renovate a home and not for John’s benefit. John complained that the transaction had occurred without his consent.

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, Doug potentially breached the following FASEA standards:

Case study three: The forgery

Katy called her father’s financial adviser Michael and made an appointment to see him. She explained that her father had had a fall and, after a short time in hospital, she was now caring for him at home.

When Katy arrived, she carried a sheaf of papers. She explained that because of his fall, her father’s home needed modifications to make it safe for him. She had quotes for a ramp, rails and a bathroom renovation. She also had paperwork, signed by her father, to make several withdrawals from investments. The proceeds were to be deposited into a cash account. Katy explained, from there her father would pay for the renovations required to his home.

Michael noticed a few things. Firstly, the total withdrawals were quite a bit more than the quoted services. Secondly, although there could be a reasonable explanation, he felt his client’s signature looked shaky. Finally, Katy looked on edge. Again, there could be a reasonable explanation – after all, her father was injured and she was caring for him.

Michael thanked Katy for the paperwork and explained he had to follow a process that would take a few days. He casually asked about her days and learned she generally left her father between 3.00-5.00pm each day to go to the gym and do some shopping. He called his client later that day during this timeframe, so he could be sure of catching him alone.

While part of the story was true – he had fallen and Katy was caring for him, he had planned no modifications and had signed no paperwork.

By going with his intuition that all was not as it was described, Michael did the right thing by his client. Had he proceeded on the basis of forged documents, he would have potentially faced a legitimate complaint that could have resulted him having to make a financial settlement. In addition, he would potentially have breached the following FASEA standards:

Elder abuse is an ethical minefield for advisers. It 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 identified earlier in this article, financial abuse is the second most common form of elder abuse. COVID-19, housing affordability, the gig economy…all are economic pressures that could see younger generations experience financial stress and take advantage of their elders. As is clear from AFCA requirements, all advice practices should have clear policies and procedures in place to identify and manage cases of elder abuse. This will ensure you act in the best interests of all clients and meet your ethical obligations.

——-

References:
[1] Seven Years of Elder Abuse Data in Victoria, August 2020 – Seniors Rights Victoria in conjunction with the National Ageing Research Institute
[2] Uniting Care, Elder Abuse Prevention Unit Year in Review 2017-18
[3] Betterhealth.vic.gov.au
[4] The AFCA Approach to Financial Elder Abuse
[5] The FSC Guide to the Prevention of Elder Financial Abuse 2019
[6] https://fsc.org.au/resources/fsc-speak-up-policy?view=article&id=539:prevention-elder-financial-abuse&catid=32

The post Ethics and your elderly clients appeared first on AdviserVoice.