Elder financial fraud and scams: what families need to know

Elder fraud is an increasing issue that affects tens of thousands of older adults every year. Seniors are often targeted because they’ve potentially accumulated significant savings, tend to be trusting and sometimes experience cognitive or health-related changes that make them more vulnerable.

Sadly, elder financial abuse is becoming so common, one study called it “the crime of the 21st century.” Understanding how it works and possible prevention measures is essential for protecting your loved ones.

WHAT IS ELDER FINANCIAL FRAUD?

Elder financial fraud occurs when someone exploits an older adult for financial gain through deception, manipulation or misuse of authority. This exploitation can take many forms, from strangers posing as government officials to trusted individuals abusing their position. The goal is always the same: to gain access to money or assets that don’t belong to them.

HOW ELDER FRAUD TYPICALLY OCCURS

Fraudsters often rely on tactics that create urgency or fear. They may impersonate legitimate organizations, such as charities or government agencies, and pressure the victim into quick action.

Others use a different type of emotional manipulation, building trust over time before turning the conversation to money.

In some cases, legitimate authority is misused, like when a caregiver or advisor takes advantage of their position to surreptitiously access funds.

Secrecy is very often a component of elder fraud, with fraudsters either acting secretly or encouraging the victim to do so.

WHO CAN BE INVOLVED

While many elder scams originate from strangers, elder financial abuse can also involve people within the victim’s circle. Caregivers, trusted professionals and even family members have been known to exploit trust for personal gain. This makes vigilance and oversight critical, even in relationships that may seem secure.

COMMON TYPES OF ELDER SCAMS

PHONE, EMAIL AND TEXT MESSAGE SCAMS

In one common scenario, seniors receive an unsolicited communication often appearing to be from a legitimate source. The call, email or text might claim a toll or tax bill is unpaid, the senior’s bank account has been hacked or even that their grandchild is in trouble and needs money. They’re pressured to act urgently to resolve the situation and avoid a terrible outcome like jail, loss of all their money or harm to a loved one.

Anyone can be targeted and fall for these kinds of scams, no matter their age. But seniors often don’t realize the extent to which scammers can convincingly impersonate someone – spoofing phone numbers and websites and, in some cases, even creating deepfake audio or video of a specific person.

INVESTMENT AND RETIREMENT SCAMS

Fraudsters know many seniors have lots of assets to invest – and those who don’t can be good targets too, because they’re often worried about not having enough money, which may make them more vulnerable to certain tactics.

Hallmarks of an investment scam can include secrecy, pressure tactics and promises that are too good to be true, like high returns with no risk.

Seniors also qualify for financial benefits in programs that can be complicated – Social Security and Medicare. Scammers can leverage this to offer “help” and get seniors to share personal information.

ROMANCE AND RELATIONSHIP SCAMS

Romance scams have exploded with the use of generative AI. Scammers no longer have to invest their own time to start and build up an online relationship – AI bots can do the chatting for them and even create photos and videos to support their stories. Seniors may be especially vulnerable because they’re often isolated and lonely.

Once the relationship is established, money requests will start to come in, with the scammer either claiming he or she needs money for bills, an emergency or to come for an in-person visit. When the well seems to have run dry, they disappear forever.

IDENTITY THEFT AND ACCOUNT TAKEOVERS

Seniors often need help with basic tasks, and that can open the door to fraud. For example, a paid or family caregiver with access to the senior’s checkbook or credit card to pay bills or buy groceries could use it to make unauthorized purchases. Or they could use their access to the senior’s information and ID to redirect Social Security or pension payments into their own accounts.

Seniors are also rightly advised to identify agents who can act in their stead if they should become incapacitated – for example, a power of attorney. Legally, a power of attorney has to act in the best interests of the person they represent. If they don’t, it can be considered fraud, theft or another financial crime – but sadly, it still happens sometimes. For example, someone with power of attorney would have the access to move money out of the senior’s accounts into their own.

WARNING SIGNS OF ELDER FINANCIAL ABUSE

It’s scary to think about someone targeting your loved ones like this, and while you don’t need to be paranoid, you should know some common elder fraud warning signs.

SUDDEN FINANCIAL CHANGES

Watch for sudden and unexplained financial changes, such as large withdrawals, new accounts or unusual spending patterns.

Sudden interest in new or complex kinds of investments, like crypto, foreign currency or gold, can be a potential indication that a fraudster is involved – especially if the senior can’t explain the investment or expects it to deliver exceptionally high returns or low risk.

CHANGES IN BEHAVIOR OR COMMUNICATION

Behavioral shifts can also signal trouble – if an older adult becomes secretive or reluctant to discuss finances, it may indicate outside influence.

NEW “TRUSTED” INDIVIDUALS

Another red flag is the appearance of new “trusted” individuals who seem to exert control or influence over financial decisions. It could be anyone from a new friend to a caregiver to, sadly, someone claiming to be a financial advisor.

Of course, hiring a new advisor isn’t a concern in and of itself. But combined with these red flags, it could signal fraud:

• A lack of appropriate licensing or selling unregistered products
• Requests for secrecy
• Complex strategies or investments that the senior can’t explain

WHY OLDER ADULTS MAY BE MORE VULNERABLE TO FRAUD

COGNITIVE OR HEALTH CHANGES

It’s well known and documented that older Americans are increasingly at risk of developing Alzheimer’s or other forms of dementia. You can see why that would reduce their ability to detect or understand fraudulent attacks on their money.

But that’s not the only way cognitive changes can make seniors more likely to fall for a scam or to remain oblivious to ongoing financial abuse. SEC research on elder financial exploitation points out that as we age, we lose “fluid intelligence,” the kind of intelligence that “enables us to hold multiple distinct pieces of information in our mind and to apply rules or logic to them.”

That loss of fluid intelligence can lead to a decrease in the ability to accurately judge someone’s trustworthiness or the legitimacy of a situation. The SEC paper cites several research studies showing that seniors were more likely to believe deceptive ads or far-fetched claims, unable to accurately deduce the intentions behind them.

Finally, seniors are more likely to have physical disabilities that increase their dependence on others, and that dependence can open the door to fraud. The SEC paper found that needing assistance with activities of daily living was associated with a higher likelihood of elder financial fraud.

SOCIAL ISOLATION

Having lost spouses or friends to aging, seniors can become isolated, which increases their risk in multiple ways. It might leave them more eager for and open to connection, which fraudsters can exploit through relationship-based schemes. Being socially isolated also can mean that no one else will spot questionable relationships or decisions.

COMPLEXITY OF FINANCIAL ACCOUNTS

Sadly, a lifetime of hard work and financial discipline can make seniors more attractive fraud targets; fraudsters go after older people because that’s where the money is more likely to be.

Seniors also may find the complexity of their finances more difficult to manage, with multiple RMDs, Social Security checks, potential pension and annuity payments and other inflows and outflows that are new to their financial landscape.

The task of managing money can become overwhelming, creating opportunities for manipulation.

HOW FINANCIAL PLANNING MAY HELP REDUCE FRAUD RISK

Family and other loved ones can be a first line of defense against elder fraud – knowing the risks and signs and keeping lines of communication open are critical.

A senior’s financial advisor can also play a role – here are a few ways.

ACCOUNT ORGANIZATION AND MONITORING

A financial advisor can often help with the work of reducing financial accounts so they’re simpler to track and monitor. And advisors may spot unusual behavior like large, unexplained withdrawals.

TRUSTED CONTACT AND OVERSIGHT STRATEGIES

Investment regulators recommend that seniors add “trusted contacts” to financial accounts that allow them. If a representative of the financial firm has reason to believe someone has impaired decision-making ability or could be a fraud victim – or if they just can’t reach their client – they can call the trusted contact with their concerns.

A financial advisor may be more likely to spot these potential issues, since they’re personally familiar with the senior’s finances and family situation, and they’re positioned to see changes over time.

COORDINATING WITH LEGAL PROFESSIONALS

A financial advisor can also help connect seniors with estate planning or elder law attorneys, who can help set up legal protections such as powers of attorney or a revocable trust.

WHAT TO DO IF YOU SUSPECT ELDER FINANCIAL FRAUD

DOCUMENTING CONCERNING ACTIVITY

Take notes on any warning signs that raise a red flag for you: dates and times, details, other potential witnesses or parties involved and any communications or other evidence.

REPORTING CONCERNS

If you suspect elder financial fraud (where the victim is age 60 or older), there are some agencies specifically set up to help.

First, you can call the National Elder Fraud Hotline at 833-FRAUD-11. They’ll assign you a case manager to help navigate next steps, which can include reporting to relevant federal, state and local authorities. When appropriate, they can also file complaints with the FBI and FTC.

Your state will also have an Adult Protective Services agency who can determine whether a case meets the definition of financial abuse or exploitation and, if so, will start an investigation and help identify appropriate services for the senior.

Reporting losses within the first few days can increase the likelihood of recovering them, so take action as soon as you become aware of the potential fraud. Don’t wait while you do your own investigation looking for proof of fraud – you don’t need it.

If the suspected fraud involves an investment, the Financial Industry Regulatory Authority also has a special helpline for seniors at 844-57-HELPS.

REVIEWING FINANCIAL AND LEGAL ARRANGEMENTS

If you’re noticing mild issues like occasional memory slips or questionable decisions (or if you just want to get ahead of the possibility), you can consider suggesting legal arrangements that would kick into place if your senior loved one becomes mentally incapacitated.

For example, a power of attorney gives someone else the authority to make financial decisions and access accounts on the senior’s behalf if necessary. A revocable trust similarly allows a successor trustee to take over management of assets in the trust if it becomes necessary (but a revocable trust is a more complex estate planning tool and an estate planning attorney should provide guidance if it’s being considered).

In the case where a senior is already mentally incapacitated and there are no legal structures in place that would allow someone else to manage their finances, you can petition the courts to identify a conservator to oversee their finances on their behalf.

HOW ELDER FRAUD PREVENTION FITS INTO A BROADER FINANCIAL PLAN

A financial plan is intended to grow and protect the money someone has spent a lifetime saving. Fraud could unfortunately destroy that financial security the plan is meant to offer, and all seniors should prepare to be targeted at some point. There isn’t any way to completely prevent elder financial abuse.

However, you can help reduce the threat of elder fraud through simple steps like encouraging your senior loved one to have legal structures in place in case of incapacity, to designate trusted contacts at financial firms and to openly communicate with you about big financial decisions, changes or emergencies.

A financial advisor can also be helpful in spotting changes, keeping seniors advised about common scams against older adults, and helping coordinate legal arrangements with an estate or elder law attorney.