Op­por­tunis­tic chil­dren can place ad­vi­sors in a dif­fi­cult po­si­tion.

Regulators and dealer firms have been slow to come up with a clear process for fi­nan­cial ad­vi­sors to han­dle sus­pected cases of el­der fi­nan­cial abuse. But they have be­gun to show a will­ing­ness to de­velop work­able so­lu­tions

Investment Executive - - FRONT PAGE - BY PATRI CIA C H IS H O LM

spi­der-man cre­ator stan Lee, age 95, ac­cused his for­mer busi­ness man­ager of el­der abuse in a US$1-bil­lion law­suit Lee filed against the com­pany he co-founded.

For­mer as­tro­naut Buzz Aldrin, age 88, the sec­ond hu­man to walk on the moon, is su­ing two of his chil­dren for fraud and ex­ploita­tion of the el­derly, among other of­fences.

(De­fen­dants i n both cases have de­nied the al­le­ga­tions vig­or­ously.)

These cases are re­mark­able only in their celebrity and, while they’ve taken place in the U.S., they point to a trou­bling trend oc­cur­ring through­out Canada as well. El­derly par­ents are vul­ner­a­ble to op­por­tunis­tic adult chil­dren — and oth­ers — who are anx­ious to get their hands on the par­ents’ as­sets. It’s a toxic sit­u­a­tion that may be be­com­ing com­mon­place, and fi­nan­cial ad­vi­sors can find them­selves in a dif­fi­cult po­si­tion with few clear guide­lines or tools for pro­tect­ing an el­derly client.

Roy Vokes, a fi­nan­cial plan­ner and branch man­ager with World­source Fi­nan­cial Man­age­ment Inc. in Klein­burg, Ont., has seen a va­ri­ety of such sit­u­a­tions over sev­eral decades in the busi­ness. Pro­tect­ing clients from preda­tory rel­a­tives never gets eas­ier, he says. A re­cent sce­nario in Vokes’s prac­tice (with some of the de­tails al­tered to pro­tect iden­ti­ties) tells the tale.

For more than a decade, the widow of a suc­cess­ful en­tre­pre­neur grad­u­ally be­came a “bank” for her unem­ployed adult son. The mother, whom Vokes de­scribes as “way too gen­er­ous,” al­lowed her son to erode funds set aside for her un­der the terms of the en­tre­pre­neur’s es­tate — and, later, funds in her RRIF, as well. The money was used by the son for ex­pen­sive non-es­sen­tials, even though the son had been well pro­vided for by his fa­ther. Once ac­cessed, the widow’s large RRIF was de­pleted rapidly by al­most 80% due to her son’s lav­ish spend­ing.

In the con­text of the fam­ily’s over­all wealth, “it was not a dev­as­tat­ing loss,” Vokes says. “But I had a duty to take steps to re­duce the burn rate.”

Prey­ing on af­flu­ent se­niors is noth­ing new, but there are in­di­ca­tions that the prob­lem may be es­ca­lat­ing. Although there are no firm Cana­dian data on the is­sue, regulators and in­vest­ment in­dus­try groups point to a de­mo­graphic shift in Canada that has cre­ated more se­niors than chil­dren for the first time since Con­fed­er­a­tion.

The 2016 cen­sus re­veals that there are 5.9 mil­lion adults over the age 65 and 5.8 mil­lion chil­dren un­der the age of 14. At the same time, the preva­lence of in­ac­ces­si­ble pools of re­tire­ment sav­ings, such as de­fined-ben­e­fit pen­sion plans, have de­clined, mak­ing life sav­ings eas­ier to un­lock.

The bulge in real es­tate val­ues also is en­rich­ing se­niors, who of­ten sell their valu­able homes to help fund re­tire­ment.

Un­for­tu­nately, these pots of money fre­quently at­tract in­ap­pro­pri­ate at­ten­tion from adult chil­dren, col­leagues and care­givers, many of whom may be bat­tling debt or un­em­ploy­ment. In the hunt for cash to fund their homes, cars and va­ca­tions, some adult chil­dren may view Mom’s and Dad’s sav­ings with a sense of en­ti­tle­ment. The U.S. Fi­nan­cial In­dus­try Reg­u­la­tory Author­ity even noted that the opi­oid cri­sis in the U.S. is driv­ing some ad­dicts to raid their par­ents’ sav­ings.

Ac­cord­ing to some es­ti­mates, about 50% of el­der fi­nan­cial abuse cases are per­pe­trated by fam­ily mem­bers or oth­ers known to the se­nior. And such con­duct clearly crosses so­cial class bound­aries and in­come lev­els.

Cana­dian regulators and in­dus­try groups re­cently took steps to ad­dress the prob­lem: the On­tario Se­cu­ri­ties Com­mis­sion stated this past spring that it will pro­duce a re­sponse to the is­sue later this year, and de­tailed re­quire­ments about the steps dealer firms should be tak­ing to ad­dress the is­sue are likely to be in­cluded. (See “Clients and men­tal ca­pac­ity” i n the April is­sue of In­vest­ment Ex­ec­u­tive.)

In late June, the In­vest­ment Funds In­sti­tute of Canada (IFIC) launched a sec­tion of its web­site called the Vul­ner­a­ble In­vestors Re­source Cen­tre. This re­source of­fers in­for­ma­tion to help ad­vi­sors deal with clients who may be sub­ject to el­der fi­nan­cial abuse. And New Brunswick’s Fi­nan­cial and Con­sumer Ser­vices Com­mis­sion re­leased com­pre­hen­sive rec­om­men­da­tions ear­lier this year aimed at im­prov­ing pro­tec­tion for se­nior clients.

Those rec­om­men­da­tions, which arise from a re­port en­ti­tled Im­prov­ing De­tec­tion, Preven­tion and Re­sponse to Se­nior Fi­nan­cial Abuse in New Brunswick, in­clude pro­pos­als for grant­ing dealer firms the power to place tem­po­rary holds on trans­ac­tions “when they have rea­son to be­lieve that fi­nan­cial ex­ploita­tion, abuse or fraud has oc­curred, is oc­cur­ring or will oc­cur.”

Still, although many i n the fi­nan­cial ser­vices sec­tor ap­plaud such ini­tia­tives, they agree there’s a prob­lem­atic gap that can be par­tic­u­larly trou­bling for ad­vi­sors who have iden­ti­fied a vul­ner­a­ble client: lack of step-by-step prac­ti­cal sup­port. Too of­ten, ad­vi­sors face i nad­e­quate an­swers from their firms and from regulators — such as vague prin­ci­ples, heavyhanded di­rec­tives to con­tact their firm’s le­gal de­part­ment and, in some cases, no guid­ance at all.

Yet, firms have over­whelm­ingly ex­pressed a de­sire for change, ac­cord­ing to a re­port on vul­ner­a­ble se­niors that the Cana­dian Foun­da­tion for Ad­vance­ment of In­vestor Rights (a.k.a. FAIR Canada) and the Cana­dian Cen­tre for El­der Law co-pub­lished in Novem­ber 2017.

Notes Mar­ian Passmore, chief oper­at­ing of­fi­cer and di­rec­tor of pol­icy at FAIR Canada and a co-au­thor of the re­port: “The knowl­edge and poli­cies and pro­ce­dures to ad­dress this is­sue are not very ro­bust. Firms want to move to the next level.”

IFIC’s new re­source cen­tre of­fers in­for­ma­tive videos on is­sues such as men­tal ca­pac­ity, along with other re­sources such as strate­gies for in­ves­ti­ga­tory con­ver­sa­tions and the role of in­flu­encers. This ma­te­rial was partly de­vel­oped by CARP (for­merly known as the Cana­dian As­so­ci­a­tion of Re­tired Per­sons).

In ad­di­tion, IFIC strongly sup­ports adopt­ing a so-called “le­gal safe har­bour” to pro­vide some pro­tec­tion for ad­vi­sors who take ac­tion to shel­ter their se­nior clients from fi­nan­cial preda­tors. Such a reg­u­la­tory mea­sure, which has the broad sup­port of regulators, would pro­vide some pro­tec­tion from al­le­ga­tions that a client’s pri­vacy has been vi­o­lated in the course of in­ves­ti­gat­ing po­ten­tial abuse.

Mi­nal Upad­hyaya, gen­eral coun­sel and chair­woman of IFIC’s vul­ner­a­ble in­vestors’ task force, says IFIC plans to “work closely” with regulators to en­sure that a le­gal safe har­bour mea­sure is

n the hunt for cash to fund their homes, cars and va­ca­tions, some adult chil­dren may view Mom’s and Dad’s sav­ings with a sense of en­ti­tle­ment

adopted even­tu­ally by se­cu­ri­ties regulators.

FAIR Canada also sup­ports the cre­ation of a safe har­bour rule, as well as the power to place tem­po­rary holds on client trans­ac­tions when fi­nan­cial abuse is sus­pected. The group has called for manda­tory re­port­ing in such cases.

“If there is a hold placed on the in­di­vid­ual’s funds, then there should be manda­tory re­port­ing,” Passmore says. “But we don’t be­lieve in manda­tory re­port­ing in all cases” — such as when an ad­vi­sor no­ti­fies the trusted con­tact per­son at­tached to the ac­count. “We want the in­di­vid­ual [ad­vi­sor] to have the dis­cre­tion at the be­gin­ning to take pre­lim­i­nary steps.”

What also is needed, Passmore says, is more train­ing and ed­u­ca­tion for ad­vi­sors and their firms so that there is a bet­ter un­der­stand­ing in the sec­tor of el­der abuse and how fi­nan­cial abuse is a part of that prob­lem.

But what­ever new reg­u­la­tory ac­tion is taken must have some mus­cle be­hind it, Passmore says: “Un­til you make it a re­quire­ment, you’re not go­ing to get any take-up.”

Vokes, for his part, took a multi-step ap­proach that em­pha­sized a firm but po­lite ap­proach with his el­derly client, her fam­ily and other pro­fes­sional ad­vi­sors.

The first step was to speak with the client on her own. “I asked some pointed ques­tions,” Vokes says, “such as who was con­trol­ling her bank ac­counts, whether she felt in con­trol and whether she was be­ing kept in­formed.”

He then ap­proached the woman’s son and asked more ques­tions, in per­son and by email.

Af­ter grad­u­ally piec­ing to­gether the fi­nan­cial pic­ture (with lit­tle co-op­er­a­tion from the son), Vokes’ next chal­lenge was to get ev­ery­one in the same room to en­sure that the mes­sage to re­duce spend­ing was heard — and un­der­stood.

The process, which Vokes says he “doc­u­mented the heck out of,” in­cluded re­view­ing bank state­ments and, per­haps most im­por­tant, get­ting fam­ily mem­bers to set up and agree to bud­gets. The client, who was not ex­pe­ri­enc­ing cog­ni­tive de­cline, agreed read­ily. The co-op­er­a­tion of the son proved more elu­sive, but even­tu­ally was se­cured. Vokes brought the fam­ily’s ac­coun­tants into the meet­ing, and in­cluded in­put from lawyers by email and phone.

Stay­ing on top of pos­si­ble fi­nan­cial abuse is­sues re­gard­ing el­derly clients “re­quires an in­ter­est in your client’s fi­nan­cial af­fairs and well-be­ing,” Vokes says. “That’s how you can dis­cover where the weak­nesses are. You have to be a lit­tle bit of a foren­sic ac­coun­tant at times to see where the money is go­ing. Fi­nan­cial drains can be hid­den for a long time.”

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