Senior Citizens: Financial Elder Abuse (Part I: Background)

Daniel Carlson is a securities litigation attorney in San Diego who specializes in recovering investment losses for his clients. This is the first in a three-part series on the financial abuse of elderly citizens.

A serious concern for both investment lawyers and federal regulators is financial fraud and investment misrepresentation against senior citizens and elderly customers nearing or having already reached retirement. Unfortunately, financial elder abuse is already a common occurrence and it is predicted to increase to twice its current number within 25 years from now. The American population aged 65 years and older will contain 72 million people by then, or over 20 percent of America’s population by 2030. This creates a huge opportunity for financial fraud peddlers to take advantage of the increased elderly population.

In the investment context, a customer’s age, life stage, and many other factors are important elements that an investment firm and the customer’s financial adviser must take into account in considering whether or not a given investment suits that customer.

Typically, sound investments revolve around the principle that customers should avoid putting money that may be needed over the next three years to five years into a risk asset, such as stocks, or other alternative investments.

Risk assets are those that include more risk than a certificate of deposit (CD) or money market fund. In terms of an investment customer’s timeline, both age and the customer’s length of time to retirement have a direct effect on what this looks like. For seniors, there is often a high priority placed on liquidity (or the ability to convert investments into cash) in order to meet expenses that arise unexpectedly. An example would be medical expenses.

This emphasis on liquidity has been a focal point of the Financial Industry Regulatory Authority (FINRA). Consequently, FINRA has put its brokerage firms on notice, reminding them of their duty to assess the fitness of prospective investments against such factors as the customer’s age, stage in life, and need for liquidity, particularly for those who are senior citizens.

More precisely, FINRA encouraged these members to closely consider:

• The customer’s employment status, how long the customer intends to work (and whether the customer’s health might affect the customer’s earning ability).
• Recurring expenses that the customer has, such as a mortgage.
• Income that the customer makes and its sources, including whether or not it is sufficient to cover ongoing expenses (and moreover, whether or not the customer has a “rainy day” fund).
• How much the customer has in retirement savings and the nature of how these funds are currently being invested.
• The customer’s access to sufficient health insurance or their reliance on investment assets to meet both those medical costs that are expected and those that are unexpected.

In Part II of this series, we will look at a few specific products that are often involved in financial elder abuse claims.

If you believe that you may have been the victim of elder abuse regarding unsuitable investment strategies, contact Daniel Carlson at the Carlson Law Firm today for a free consultation at 619-544-9300.