Awareness may be the most effective tool against financial fraud. As a financial professional, be aware of signs that leave your clients vulnerable, like changes in financial judgment or a sudden interest in aggressive investment strategies and get-rich-quick schemes. Here are just a few strategies that could help prevent fraud:
What's the Deal?
Financial fraud can devastate your clients and also damage your business as a financial professional. If your clients are older, their portfolios have less time to recover from losses. Being proactive rather than reacting to fraud after the fact can benefit your practice and show clients you’re looking out for them.
Help protect client relationships – and your business – by taking steps to help prevent it.
Why It Matters
Wealth and health are inextricably linked, so it’s no surprise that some victims have reported stress, anxiety, difficulty sleeping, and depression.
Help build trust with your clients and their families by sharing information about how they might help protect themselves from con artists and scams.
Help Clients Sift Facts from Phonies
Just as doctors may need to remind clients to stop self-diagnosing themselves on WebMd, financial professionals may need to help clients sift through the wave of financial information flung at them daily.
Fraud committed by those who have enough information to trick the victim into thinking they have a relationship. Examples include:
The internet is a popular tool for fraudsters. Phishing happens when a fraudster creates and sends an email that appears to be from a legit source or company that the victim does business with. The good news is, the email itself often offers clues that it is fake. Telltale signs include bad grammar or requests for sensitive information.
A fraudster may call claiming to be an IRS official, sometimes even giving a fake badge number. The con artist usually demands immediate payment, with threats of arrest, deportation, or other legal action for unpaid taxes or due to a mistake on a tax return.
An example: A senior donates $10 to a new charity. No big deal, right? Well, it is when that person’s name appears on a “sucker list” of people known to always donate. In that scenario, the senior might receive multiple calls a day asking for money.
These usually involve an ad or salesman who persuades seniors to invest in an unusual asset, such as commemorative gold coins, a horse rescue farm, or even penny stocks.
More and more of us are becoming familiar with this one. A fraudster might apply for a credit card or other financial instrument in another person’s name, or a cybercriminal might steal and use someone else’s credit card or bank account number.
This typically involves a contractor who insists on being paid upfront for work he or she never intends to complete. In other variations, the contractor will overcharge the senior or charge multiple times for the same work.
Fraud perpetrated by someone the victim knows. Examples include:
Misappropriation of income
This usually involves people exploiting or exceeding the authority they’ve been given over someone’s finances. Think of someone who becomes a “representative payee” of Social Security benefits and then improperly accesses a senior’s Social Security income. Becoming a representative payee is similar to becoming an agent under a power of attorney.
Other examples could involve adding a name to a bank account under false pretenses, abusing power of attorney, or transferring a title to or re-encumbering real property.
A fraudster calls a widow to inform her that her deceased spouse owes thousands of dollars in unpaid debt. Financial ruin is threatened if she doesn’t pay quickly and a steeply discounted “settlement offer” is typically proposed.
The senior receives a call, ostensibly from a grandchild claiming to have been arrested while on vacation and needing money. The fraudster asks the senior not to tell Mom and Dad because they will get angry. These calls typically happen late at night when the senior is groggy and confused. This con has evolved to the point where scammers are following actual grandchildren on social media so they can give seniors correct names, making the con seem more believable.
This involves a younger man or woman who develops a close relationship with a senior—typically someone who is lonely or who has become isolated. The goal for these fraudsters is to be written into the will or receive gifts directly.
The True Link Report on Elder Financial Abuse 2015
How to Help Protect Your Most Vulnerable Clients
A terrifying scam gaining steam that involves preying on your clients’ emotions to cheat them out of thousands of dollars by using their family as the bait.
Strategies to Help Prevent Fraud
Awareness is perhaps the most effective tool against financial fraud. As a financial professional, you should be alert to the warning signs that leave your clients vulnerable.
Things like changes in financial judgment. Perhaps your client takes a sudden interest in aggressive investment strategies or get-rich quick schemes.
It’s fine to suggest that clients consider using a power of attorney – and to remind them to use care when choosing an agent because fraud can happen when powers are granted to the wrong individuals.
Ask clients for copies of all powers of attorney (POA) designations and to let you know of any changes. Sudden changes in POA may sometimes be a red flag that fraud is occurring.
Remember, clients can limit the powers they give their agents. A client could spell out that the agent can’t change a client’s wealth transfer strategies or apply for credit on the client’s behalf, for example.
Know who the most important people are in clients’ lives, along with the most- and least-trusted people in their lives. When you have an open line of communication with your clients, you are more likely to spot signs associated with fraud.
Also, being familiar with a client’s monthly budget can help you spot irregular activity, not to mention whether the client’s financial strategy is providing enough income to meet his or her needs.
When addressing financial fraud, don’t go it alone. Your firm’s compliance department is a crucial partner.
Compliance can decide when to report a case to authorities and recommend steps you can legally take to prevent fraud (such as when you can decline a client request or put a hold on client funds).