Most elder fraud is all in the family

Buck Wiley is managing director-wealth management at Merrill Lynch in Atlanta.

Buck Wiley is managing director-wealth management at Merrill Lynch in Atlanta.

When you think of elder fraud, what comes to mind? If you think of Grandma getting spammed by a “Nigerian Prince” or phone-scammers who claim to be from the IRS, you aren’t alone. A recent Wall Street Journal article reported that 43 percent of older Americans exhibit one or more signs of financial victimization, but these scams that we hear so much about represent only a small portion of elder fraud.

In fact, a recent Merrill Lynch study indicated only about 4.5 percent of elder financial fraud came from these types of schemes. People in their retirement years are far more likely to be cheated of their money by family members — a whopping 70 percent of elder fraud cases.

It is hard to imagine someone preying on a person who is frail, defenseless, isolated, overly trusting, or in some cases, in cognitive decline. However, it is these types of traits that make older people potential targets.

While some people isolate themselves to prevent fraud, this can actually cause, rather than prevent, victimization. Behavioral finance suggests that people deepen connections with others to enable information flow and facilitate collaborative decision making. While seemingly counterintuitive, this intentional openness can be a way for families to prevent, detect, and recover from elder fraud.

How can we be more aware of the problem?

A study of 201 financial advisers found that when elder fraud was suspected, the most common potential perpetrator was a family member. This does not suggest all family members should be suspected fraudsters, but it highlights the importance of recognizing that families are not immune to potential fraud within their circle. Suspected fraud more often takes on a more subtle form, such as a change in core influencers and decision makers, or a change in gifting or investment behavior. When we think about financial fraud – especially with older individuals – we need to broaden our frame. A perpetrator of fraud can be almost anyone.

How can we help prevent elder fraud?

As with investments, concentrating relationships in just one area can create risks, whereas diversification may help mitigate those risks. A core discussion network — trusted people with whom a person can seek advice or express concerns — need not be made up just family members. People are often more comfortable talking with those with whom they have longtime professional relationships, such as doctors or financial advisers. These trusted individuals are more detached and objective than family members and provide an outlet if people don’t want to discuss sensitive information with family or friends.

When is a person most vulnerable to fraud?

Isolation is a common thread in elder fraud cases. This could be due to the loss of a spouse, relocation to an unfamiliar area, health problems, or other factors. People who are alone a great deal may enjoy chatting with a friendly stranger so much that they don’t realize that the ‘nice’ person who’s taking so much time with them is actually looking for an opportunity to steal their money. A network of trusted associates is among a person’s best ways of avoiding financial exploitations.

What are other ways to prevent fraud?

Another key way families can avoid elder fraud is to hold quarterly or annual meetings in which there is open and honest dialogue about financial questions and concerns. Having these discussions with a financial adviser can also provide a guidepost that may help detect changes in behavior. If there are any irregular or unexpected decisions being made, this can enable important conversations to confirm that these decisions are not being influenced by a fraudster.

How can you detect fraud? And what is the recovery process?

Having at least three unconnected people in a network improves the odds that at least one will recognize when something isn’t right. Once a network of people who can be trusted is established, a person should regularly meet with these people to discuss their personal affairs. In those unfortunate circumstances in which a senior has been financially exploited, a core discussion network can mean the difference between recovery – financially, psychologically, and spiritually – and increased vulnerability.

Buck Wiley III is a private wealth advisor, managing director-wealth management, at Merrill Lynch in Atlanta.