Diminished Capacity in Senior Investors A $ecure Colorado Presentation
The Setting • •
10,000 baby boomers turn 65 every day. The 65+ population is expected to triple over the next 15 years.
The Setting
• •
People 65+ hold around 2/3 of the overall wealth in the country. Retired Americans have $15 trillion in investible income.
The Problem • It is estimated that seniors alone lose over $2.9 billion per year to financial fraud, but the effects reach far beyond finances. • Seniors who are financially exploited have a 300% higher mortality rate within 7 years of the crime. • Other side effects include depression, health problems, additional financial losses due to legal fees, overdue bills, etc., and revictimization. • National Center on Elder Abuse- Impact of Abuse
Diminished Capacity
Alzheimer’s Statistics
• In the United States, 5.5 million people have Alzheimer’s (expected to double by 2030): o 1 in 8 over age 65 o 1 in 2 over 85 • Of those over age 65: o 93% will be solicited to invest o Of those solicited: • 47% will actually invest • 34% will likely lose money
The Spectrum
• Mild cognitive impairment is like being stuck in the middle between normal aging (some memory loss, etc.) and dementia (marked cognitive decline and help needed with daily tasks).
Mild Cognitive Impairment • 35% (8.8 million) of Americans over the age of 71 have either Mild Cognitive Impairment (MCI) or some form of dementia.
• MCI, which affects executive cognitive functions, causes one to take much more risk with money and investments. • With MCI a person is 4x more likely to make financial errors, even if they can perform other functions with ease.
MCI
Financial decisions + MCI or dementia =
potential for abuse/exploitation • Financial capacity is the “capacity to manage money and financial assets in ways that meet a person’s needs and which are consistent with his/her values and self interest.” • Impairment of financial capacity if one of the earliest indicators of MCI, Alzheimer’s and others dementias. • The combination of making financial decisions while experiencing MCI or an early stage of dementia/Alzheimer’s can be disastrous. •
2011 AARP Report: Assessing civil competencies in older adults with dementia.
Reporting • Why are seniors afraid to report? 1.
2.
Embarrassment • Pervading idea that victims of fraud are uneducated, gullible, unable to control their own finances, unreliable. • General portrayal of common victim as old, demented, lonely, confused, stupid. Loss of independence • Fear of loss of control – same reason why seniors have a hard time handing over the car keys, asking for help with physical tasks, etc. • Fear of assisted living/nursing home care: o Nearly 1 in 3 long-term care facilities have been cited for potentially hazardous conditions. 1 in 10 have been cited for actual violations. o 44% of elders in long-term facilities report abuse, and 95% report neglect.
How to prove a theft/fraud • Taking property; • Belonging to another; • Without consent; • With intent to permanently deprive.
Lack of Consent • Under the law, in order to consent to a transaction a person much: o Act freely and voluntarily, and not under the influence of force, threats, or duress. o Have knowledge of the TRUE nature of the act or transaction involved. o Possess the mental capacity to make an intelligent choice whether or not to do something proposed by another person.
Proving Undue Influence • • • • • • •
Length of relationship Place of first meeting Prior spending habits Prior “charitability” What is left? Multiple escalating transactions Statements and conduct by suspect.
Signs of Elder Financial Fraud? o We will hold securities registrants responsible if they are making unsuitable recommendations to elderly/at-risk clients or violating fiduciary duty • Suitability standards and fiduciary duty may apply in cases of diminished capacity. o Recognize potential lack of consent by investors with diminished capacity. Are an adviser or broker’s clients being taken advantage of or targeted due to their age or mental capacity?
o Work directly with people who may be impacted (at-risk adults and the elderly). • Work with front line senior service providers • Raise awareness to industry professionals through compliance events, meetings, and during exams • Provide resources to regulated professionals to raise awareness about at-risk clients – warning signs, risk factors, etc. • Encourage industry to communicate more effectively with senior clients. • Modify communication approach when working with seniors.
