Elder Financial Abuse
America is aging. Forty-one million Americans are currently retired. The first Baby Boomers just turned sixty. Seventy-seven million Baby Boomers are expected to retire within the next twenty years. By 2030, almost 1 out of every 5 Americans will be 65 years old or older. Those who are 85 years old and older are now in the fastest-growing segment of the U.S. population.
It is estimated that the annual financial loss by victims of elder financial abuse is at least $2.9 billion dollars. Instances of fraud perpetrated by strangers comprised 51% of elder financial abuse.
Most instances of elder abuse concern the sale of variable annuities, most often under the pretext that they are guaranteed, often not informing the customer that they must die to realize a guaranty, and also involve, to investors seeking a higher, but safe yield, the fraudulent sale of non traded Real Estate Investment Trusts or REITs.
Many states have specific statutes providing exemplary or special damages to victims of Elder Abuse.
For example, California Welfare and Institutions Code Section 15610.30, the financial elder abuse statute, imposes liability upon those standing a fiduciary relationship to an elderly person. Since its inception in 1994, California Welfare and Institutions Code Section 15610.30, the financial elder abuse statute, imposes liability upon those standing a fiduciary relationship to an elderly person.
California Welfare and Institutions Code Section 15610.27 defines “Elder” as any person residing in this state, 65 years of age or older. According to California Welfare and Institutions Code Section 15610.30, “Financial abuse” of an Elder occurs when a person or entity “assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder” with the “intent to defraud.” The Code also provides for the recovery of reasonable attorneys fees and cost of suit. Welfare and Institutions Code § 15657.7
Florida Statute § 825.103 defines Elder Abuse as: Florida Statute § 825.103 defines Elder Abuse as: (a) Knowingly obtaining or using, or endeavoring to obtain or use, an elderly person’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the elderly person or disabled adult of the use, benefit, or possession of the funds, assets, or property, or to benefit someone other than the elderly person or disabled adult, by a person who:
- Stands in a position of trust and confidence with the elderly person or disabled adult; or
- Has a business relationship with the elderly person or disabled adult.
Florida Statute § 825.103 (2016).
FINRA has repeatedly stated that variable annuities are generally considered to be long-term investments and are therefore typically not suitable for investors who have short-term investment horizons. This is true even of some variable annuities that offer riders specifically designed for seniors, including those offering guaranteed life benefit.
In September 2007, FINRA reminded firms and registered representatives of their obligations relating to senior investors and industry practices to serve these customers. According to FINRA, as investors age, their investment time horizons, goals, risk tolerance and tax status may change. Liquidity often takes on added importance. Depending on any investor’s particular circumstances, seniors and retirees may have less tolerance for certain types of risk than other
Retirees living solely on fixed incomes are more vulnerable to loss than those who are still in the workforce. Investors with limited time horizons cannot afford to wait to recover investment losses caused by market fluctuations.
Accordingly, FINRA has reminded and cautioned its members that: Firms should carefully consider the risk of a product with the age and retirement status of the customer in mind, including its market, inflation and issuer credit risk. Different investment involves varying degrees of risk and reward. For many investors who are at or nearing retirement, there can be a temptation to reach for yield to maximize retirement income without the appreciation of the concomitant risk.
Moreover, it can be difficult for some investors to fully appreciate the risks of certain products or strategies, particularly if the risk is “portfolio failure” meaning that they can run out of money in the lifetime. This is particularly true when investors receive lump-sum pension plan payments, or early retirement payments, sometimes and most often in the form of stock from their employer.
With respect to the sale of REITs and other private placements, which also may be unmarketable and otherwise longer term investments, FINRA has cautioned its members that a customer’s net worth alone is not determinative of whether a particular product is suitable for that investor, even when the investor qualifies as an accredited investor under Regulation D of the Securities Act of 1933.Moreover, often, there is over reliance on the part of the broker on the customer’s net worth which may include the value of their home and which may represent the largest asset of many senior investors.
Simply put, eligibility does not equal suitability.
High-pressure Sales Tactics
Another concern to FINRA and other regulators, and as is often seen in cases involving seniors is the use of “free lunch” seminars that use high-pressure sales tactics to promote products that may not be suitable for all persons in attendance. Such high-pressure tactics include attempts to create an artificial or inappropriate sense of urgency around major decisions or commitments or that heighten or exaggerate typical fears of older investors.
Certain states, such as California provide enhanced remedies or damages for victims of elder abuse. California Welfare and Institutions Code Section 15610.27 defines “Elder” as any person residing in this state, 65 years of age or older. According to California Welfare and Institutions Code Section 15610.30, “Financial abuse” of an Elder occurs when a person or entity “assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder” with the “intent to defraud.” In addition to compensatory damages, the California Edler Financial Abuse statute provides for the recovery of reasonable attorneys fees and cost of suit.