Two years after New York socialite Brooke Astor died in 2007, her son, Anthony Marshall, was convicted of bilking her of millions of dollars. The heiress suffered from dementia, and did not know that her son, charged with her care, was paying himself exorbitant amounts from her assets.
The Astor story is surprisingly common: a growing number of Americans suffer from Alzheimer’s or another form of dementia, and a sizeable percentage of those patients will fall victim to scams.
U.S. states are now looking to provide more protection for elderly investors. Three states, most recently Missouri, have enacted laws that allow retail brokers to help curb scams against people with dementia.
The measures, under consideration in other states as well, give brokerages the authority to prevent older clients from transferring money to other people, at least temporarily, if a wealth manager believes his or her customer may have dementia and may be unknowingly being conned.
More than five million Americans over the age of 65 have Alzheimer’s disease, the most common form of dementia, according to the Chicago-based Alzheimer’s Association. That represents about 1.5 percent of the U.S. population, and could balloon to 7.1 million by 2025.
These victims can become easy marks for con artists and unscrupulous family members. U.S. seniors lose as much as $2.6 billion per year to financial exploitation, according to the Securities Industry and Financial Markets Association, a brokerage trade group.
A 2011 study by the U.K-based Alzheimer’s Society found that almost two-thirds of caregivers for Alzheimer’s patients said people they were looking after had been approached by “unscrupulous cold callers or salespeople” and 15 percent had been subject to some kind of financial abuse.
More than half of all senior financial exploitation is perpetrated by friends, family members or caregivers, according to brokerage industry trade group SIFMA. The abuse is often difficult to spot. But requests for large, “questionable” sums of money are often a sign, the group says.
“It’s a big problem and it will get bigger,” said Lynne Egan, Montana’s deputy securities commissioner, who heads a committee of state securities regulators drafting model laws for legislatures on this matter.
Philip Marshall, Anthony’s son and Astor’s grandson, told Reuters that laws like the ones being passed in Missouri could have helped protect his grandmother. The younger Marshall, a professor of historic preservation at Roger Williams University in Bristol, Rhode Island, recently went on sabbatical to spend more time working on elder protection issues.
He testified in front of the U.S. Securities and Exchange Commission and a Senate special committee on aging this year to urge regulators and financial firms to use big data and analytics to chart the financial patterns of vulnerable clients. Using big data could help could highlight irregularities that may be linked to a scam or abuse.
Brooke Astor was an heir to the fortune the Astor family began accumulating in the 18th century from trading furs and investing in New York real estate. She died in 2007, aged 105, with a nearly $200 million estate, most of which was dedicated to philanthropy. Her son exploited part of her estate intended for Astor’s personal expenses, including paying himself almost $1 million for managing her affairs in 2006, a jury found.
“My grandmother would never want to be known as one of America’s most famous cases of elder abuse,” Philip Marshall said in his Senate special committee testimony in February. But her circumstances in promoting the debate on elder abuse may be her “greatest, most lasting legacy,” he added.
Some with reservations about these laws fear that the government could empower wealth managers to halt legitimate transactions, keeping elderly people from their money.
“Always, the best solution is going to be stiff penalties and jail time for people who perpetuate fraud and to try not to do anything that is going to burden the legitimate playing field with government red tape,” said Gerry Scimeca, a spokesman for the 60 Plus Association, an elderly rights group that promotes less government involvement in senior issues. Nonetheless, states should be free to experiment, Scimeca said.
HAMSTRUNG WITHOUT THE LAW
Missouri on June 12 became the third state to enact a law to protect senior citizens against these scams, following similar efforts in Washington and Delaware. A committee of The North American Securities Administrators Association, the group that Montana’s Egan works with, is developing model legislation and regulations for states to consider.
But finalizing the rules can still be a long way off. Once complete, it will take at least two years for all states to consider because of their legislative schedules, Egan said.
Missouri’s law, effective in August, requires brokerages not only to report suspected abuse to state agencies, but allows them to delay withdrawals and wire transfers for up to 10 business days. The broker may also alert family members.
The Financial Industry Regulatory Authority, Wall Street’s industry-funded watchdog, is also developing guidance on the issue, with input from the SEC, said FINRA chairman and chief executive Richard Ketchum, at the 2015 Reuters Wealth Management Summit [ID: L1N0YW1TV]. Brokerages want clarity from FINRA because of rules that require them to move ahead when customers make a transaction.
Roughly half of U.S. states have laws that require employees of financial institutions like banks and credit unions to alert state agencies when they suspect an elder customer is being financially exploited, according to the National Adult Protective Services Association. But not all of them extend to retail brokerage employees or allow the institution to delay withdrawals.
Protecting people with dementia from financial predators is difficult. The disease is slow moving and advances in fits and starts – its victims can have long periods of lucidity followed by bouts of forgetfulness and confusion.
A diagnosis typically requires in-depth testing, including everything from a thorough medical history to physical and neurological exams, as well as blood tests to rule out other symptoms, according to the Alzheimer’s Association. It is hard for brokers to determine when a client is lucid or forgetful, or when the disease has advanced beyond the point of no return.
Brokerages are often hamstrung by the problem. Calling concerned family members to question a client’s instructions may violate laws about protecting privacy along with rules that require processing transactions on time, industry compliance professionals said. But following the client’s instructions can lead the customer to fall victim to a con or abusive caretaker, industry leaders have said.
Without the new laws, brokers could face lawsuits and enforcement cases for taking action or honoring the transaction. “We will be sued on both counts,” said Ronald Long, Director of Regulatory Affairs and Elder Client Initiatives for Wells Fargo Advisors. For example, one brokerage was sued for honoring a transaction in which an elderly client gave a large sum of money to a friend and died three days later, Long said, declining to name the firm.