Financial fraud targeting seniors is a growing concern, with dishonest brokers and advisors often taking advantage of elderly investors' vulnerabilities. Many seniors may not be familiar with the latest investment trends, financial products, or complex strategies, making them easy targets for deceptive practices. As individuals approach retirement, their financial needs change—requiring a greater focus on liquidity, steady income, and risk management. Unfortunately, some financial professionals exploit these needs by recommending high-commission investment products with hidden risks.
If you are an older investor and have experienced unexplained financial losses, your broker may have engaged in elder financial fraud. Malecki Law, a New York-based securities law firm, can assess your portfolio and determine whether fraudulent or unsuitable investment practices have contributed to your losses. FINRA has put specific rules in place to protect seniors from financial exploitation, requiring brokers and firms to provide heightened care when handling the accounts of older investors.
How Investors Can Protect Themselves From Elder FraudSeniors can take proactive steps to safeguard their finances. One effective measure is designating a trusted contact person on brokerage accounts. This individual—such as a family member, attorney, or financial professional—can be notified if a brokerage firm detects potential fraud or questionable transactions. However, having a trusted contact does not always prevent misconduct, and bad actors can still take advantage of seniors.
To further protect elderly investors, FINRA mandates brokerage firms to place a temporary hold on transactions when they suspect financial exploitation. Once a hold is placed, firms must investigate the situation before processing any further transactions. However, firms cannot abuse these rules to arbitrarily delay transactions that are not linked to suspected fraud.
Understanding the Scope of Elder Financial FraudAs the U.S. population ages, financial fraud against seniors has become an alarming issue. With an estimated 73 million baby boomers in the country, financial predators have more opportunities to exploit this demographic. Studies indicate that one in five Americans aged 65 or older has been a victim of financial fraud.
Many cases go unreported because seniors often feel embarrassed or hesitant to admit they were deceived. Since many victims are retired, they may not have the ability to recover financially from fraud-related losses. Scammers often target individuals with retirement accounts, pensions, and other investments, exploiting their trust for financial gain.
Cognitive Decline Increases the Risk of FraudElderly individuals suffering from Alzheimer’s disease or cognitive decline face an even greater risk of financial exploitation. Fraudsters take advantage of these conditions, knowing that diminished mental capacity can make seniors more susceptible to misleading sales tactics.
A study conducted by Stanford University in collaboration with FINRA and AARP revealed that seniors experiencing strong emotions—whether positive or negative—are more likely to fall for fraudulent investment offers. These findings underscore the importance of careful financial planning and regulatory oversight to protect elderly investors.
Regulatory Protections for SeniorsRegulators such as FINRA have taken measures to prevent elder financial fraud, but more work is needed. The responsibility of identifying and stopping fraud falls on many professionals, including:
Malecki Law has extensive experience handling elder fraud cases. Our attorneys work to educate investors, hold fraudulent financial professionals accountable, and advocate for stronger protections for seniors.
Common Types of Elder Financial FraudMany older investors mistakenly believe that fraud only involves outright theft, but financial misconduct can take many forms, including:
Seniors should also be wary of brokers who develop personal relationships and ask for loans or financial favors.
Loans Between Financial Advisors and ClientsA major red flag in elder financial fraud cases involves financial professionals borrowing money from or lending money to clients. FINRA strictly prohibits these transactions under Rule 3240, with only a few narrow exceptions.
Exceptions to Rule 3240
The rule allows a financial advisor to borrow from or lend to a client only in these circumstances:
If none of these exceptions apply, the transaction is likely a violation of FINRA regulations, and the advisor may be liable for misconduct.
The Role of Financial Advisors in Preventing Elder FraudAlthough financial advisors are aware of elder fraud risks, previous regulations made it difficult for them to intervene without violating client privacy. In response, FINRA implemented new rules empowering advisors to take action if they suspect fraud.
One of these measures is the "Pause Law," which allows brokerage firms to temporarily block suspicious transactions and notify a trusted contact. Additionally, FINRA’s toll-free senior hotline, launched in 2015, provides assistance to elderly investors facing financial exploitation.
The Impact of Regulation Best Interest on Senior InvestorsBefore 2020, brokers were only required to meet a suitability standard, meaning they could legally push high-commission products even if better alternatives existed. However, in June 2020, the SEC implemented Regulation Best Interest (Reg BI), which holds brokers to a higher, near fiduciary standard.
Under Reg BI, brokers and investment professionals must:
While Reg BI is a step forward, some brokers still engage in dishonest practices, and legal action may be necessary to recover losses.
Financial Capacity and Legal Protections for SeniorsThe balance between protecting seniors and maintaining financial independence is an ongoing challenge. Poor financial decisions caused by diminished capacity can have devastating consequences, making it essential for attorneys and financial professionals to intervene when necessary.
The American Bar Association (ABA) and the American Psychological Association (APA) have developed legal guidelines for assessing financial decision-making capacity. These tools help attorneys and estate planners determine whether an elderly individual is capable of managing their finances or if financial abuse may be occurring.
Steps to Take if You Suspect Elder Financial FraudSeniors and their families should remain vigilant for warning signs of financial exploitation. Common red flags include:
Elder financial fraud can have lifelong consequences, but legal remedies are available. FINRA regulations, state laws, and arbitration proceedings provide avenues for seniors to recover losses and hold fraudulent advisors accountable.
If you or a loved one has been affected by investment fraud, broker misconduct, or financial exploitation, contact Malecki Law today. Our experienced elder financial fraud attorneys can review your case at no cost and help you understand your rights.
Call (212) 943-1233 or email jenice@maleckilaw.com to schedule a consultation.