Circle the Wagons

Shoring up our financial defenses before we can’t remember where we put da fences

I am a pretty laid-back person, but one thing that makes me go from zero to ‘losing it’ in short order is when somebody attacks Grandma (or Grandpa.) Not just my grandma, but any grandma. In this case, I’m not speaking of physical attacks (which is a whole different level of evil) — Rather, I’m referring to attacks on personal finances.

How common is financial abuse?

Recent statistics from the World Health Organization (WHO) show that psychological and financial abuse affect close to 19% of seniors (*1). The same organization also suggests that only 1 in 24 cases are reported (*2). These crimes are now so widespread that elderly financial abuse is often called “the crime of the twenty-first century.”

What are some examples of elder financial abuse?

In nearly 20 years of working in a financial planning and fiduciary role, I have seen a great deal of financial abuse in many forms. Perhaps you’ve seen a few of these over the years as well:

• An adult child/stepchild/grandchild moves back in with their parents or grandparents promising to pay rent, which rarely gets paid. Parents may be convinced to “loan” the child money on multiple occasions, loans which are not kept track of and get lost in the breeze.
• As a person ages, a child, sibling, or grandchild moves in with them to take over “care giving” tasks. Abuse occurs when this caregiver also unnecessarily takes over aspects of the elders’ financial life and/or freely uses their cash/credit cards for personal reasons, to pay off debt, etc.
• Various psychological manipulations may also occur, such as convincing the elder that if it weren’t for their care-giving efforts, they would be confined to a nursing home or worse. They may also make attempts to keep the elderly person isolated from other siblings or concerned family members.
• …and the list goes on.

These scenarios may be common among a victim’s siblings, spouses from second marriages, friends, neighbors, etc. but are not limited to close acquaintances. Complete strangers can persuade their victims through in-person sales tactics, a written letter, phone calls, emails and the like. We all probably know someone who is convinced that their financial situation has miraculously improved thanks to a very generous Nigerian Prince.

One of the most egregious offenders I have experienced first-hand was an out-of-town annuity salesman who ruthlessly pursued some elderly clients I had worked with for many years.

The husband had been on a steady decline over several months and was no longer able to keep up with financial matters. The salesman and his assistant showed up to the couple’s personal residence late one afternoon and proceeded to hound the couple, filling them with (illegitimate) fears until they bought whatever financial product he was peddling. This particular company had several credit downgrades and paid their salespeople huge commissions to get their products sold, which in turn locked up the clients’ money for quite some time.

But…it didn’t end there.

They dialed my office (after hours, by design), handed my client a script and had her read the script to my voicemail box. Her voice came over my voicemail sounding like a robotic stranger that I had never met, instead of the lady who had sat in my office dozens of times over several years. The script instructed me to sell all holdings in her accounts in preparation for transfer and specifically told me NOT to call her back for any reason.

Upon receiving this voicemail, I picked my jaw up off the floor and quickly realized I had no choice but to sell everything in her accounts. This action also triggered a significant amount of capital gains in her non-qualified account.

It’s moments like these that make me want to give my old friend Guido a call!

The silver lining to this story was that I immediately wrote my client a letter and mailed it off. She called back two days later to let me know she made a terrible mistake and felt sick about it and didn’t know what to do. Fortunately, we could reverse the transfer due to the free-look period for insurance products in our state at the time. It made me sick to my stomach just imagining what that whole meeting looked like in their living room.

How do you protect yourself from financial abuse?

I am the cook in my house and will average 6 to 7 trips to the pantry during dinner prep only to stand there scratching my head as to why I’m there. On the bright side, we end up with some very creative and exotic dinners. This also serves as a reminder that it’s not just our parents who need to have a financial plan in place, but that we should all be taking a close look at our own situations to make sure we won’t be vulnerable to financial abuse down the road.

Studies have shown that we actually peak in our financial decision-making abilities at age 50.  In most cases, we don’t even realize that we are slowly losing our edge on all things fiscal. I have a great friend who loves to poke fun at his own aging process. He once told me that he was suffering from feces-heimers. I said, “What’s that?” To which he replied, “I can’t remember crap!”

Here are a few things we can do to circle our wagons and help prevent these same things from happening to us later in life:

• Bring the kid(s) into the loop early on – I suggest that clients bring in at least one of their children early on, while everybody still has their wits about them. I love to meet them and become a non-stranger to them. While we are all together, I have the parents give me permission to talk with their (adult) child if they ever start making decisions that I deem out of the ordinary for them. I usually keep a signed document to that effect on file as well. This will be different for all households. It may be best to have multiple kids in on the plan or perhaps a younger sibling or trusted friend.
• Make sure legal documents are in place and up to date – It is of paramount importance to have robust and current Durable Powers of Attorney in place for financial decisions. It will provide strength and functionality in case I need to reach out to the trusted family member or friend. Revocable living trusts can also play a role in this process. If the living parents are still acting as both the trustee and the beneficiaries of that trust, there will most likely be a clause in place that can move them from being the trustee, and pass that on to the successor trustee while still keeping all of the beneficial relationship to the trust and their assets.
• Establish common ground on “capacity” – We need to communicate openly with our trusted advisors, family members, and friends to clearly decide when it is OK to throw the red flag and have someone else step in. I have seen people completely freak out and call the cavalry the first time 2 + 2 = 3. Conversely, I have seen people riding purple unicorns and still insisting on making all financial and investment decisions. Determine what “that moment” looks like for you and let your trusted people know.
• Figure out who can offer what and when – Put the plan in place now as to who is going to do what when the time comes. Some kids will be better equipped to handle certain tasks over others. One may have the time and space to move mom and/or dad into their place, while another might have a solid understanding of financial matters. Help everyone understand their future role and keep that up to date as life changes.
• Checks and Balances – As we mentioned earlier, the lion’s share of financial abuse happens from those closest to us. Every family is different and so every plan should be as well. It is good to have someone ready and able to step up and take care of the logistics, but then also have someone (or everyone) in the loop to make sure that everything goes according to plan and remains on the up and up. This can also help guard against bitterness arising amongst family members down the road. It can be as simple as keeping basic annual accounting records, much like a guardian would have to produce to the courts.
• Evaluate your professional advisors – It is good to take inventory of the financial advice you receive and those who give it to you and your loved ones to make sure they line up with your best interests. Ideally, all your advisors would benefit most by your best interests being served (when you succeed, they succeed.) This is what we consider a true fiduciary. Even better if all your advisors (Think: financial planner, estate planning attorney, accountant) could work in harmony with each other. Even if a full team meeting isn’t realistic in your circumstance, a group email will be beneficial in communicating your desire for everyone to work together and even give permission for them to speak to each other on your behalf. It never hurts to have a trusted team on your side.

It is a simple fact that most of us will diminish in our capacity for good decision-making at some point in our lives…and we might even be fortunate enough to not give a flying flip. To refer back to my “feces-heimers” friend – he once got up from a conversation and said that he had to go change his Depends.  Caught off guard, I stammered, “I didn’t realize you had to wear them” —to which he replied, “Oh, I don’t HAVE to wear them”…and then smiled and gave me a double thumbs up as he walked away.

Let’s take a serious look at these things now so we don’t have to take ourselves too seriously later on.

(*1) – World Health Organization Media Centre, June, 2017, http://www.who.int.mediacentre/factsheets/fs357/en/

(*2) – [5] National Centre on Elder Abuse, 2017, supra.