How Financial Advisers Can Abuse Their Elderly Clients: Family Finances

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Elder Financial Abuse Right Under Our Noses?

Alice, my mother in law, is blessed with a great memory and pretty good health for a woman of 91. She works at it. She’s been a widow for 5 years now. When he was alive, Dad always handled their finances. Since she’s been on her own, she relies on her two adult children and an accountant friend to guide her about her investments. She’s comfortable, but not wealthy by most measures. There is money enough to take care of her, although full time care would eat up a lot of what she has. Luckily, at this time, she is able to remain independent.

She Thought Her Investments Were Doing Well

She was referred to a financial adviser, known by a family member. She thought things were fine until a year went by, the market was doing well and she had no gains at all in her portfolio. Alice decided to change financial advisers. It was then that she learned, to her dismay, that her current adviser had done something that really got her angry. He had taken 10% of her investable assets and put them into a real estate investment trust (REIT) that could not be liquidated for 12 years, without a substantial financial penalty to her. She is not a sophisticated investor and relies on others for advice. She relied on her financial adviser a lot.

Alice says the adviser never told her what he was doing with this investment and never explained that she would not be able to access the funds if she needed them, unless she suffered a loss in the form of a penalty. He, of course, says he told her all about the investment, and she agreed. She doesn’t believe him. My husband, Mikol, interviewed her about this and put it on YouTube.  Here’s what Alice has to say.

 Cracking Down On Financial Abuse

In the July 14, 2013 InvestmentNews, Dan Jamieson reports that the Financial Industry Regulatory Authority and the state regulator in MA are cracking down on financial advisers selling elders exactly the kind of nontraditional, illiquid investment the financial adviser chose for Alice. Mr. Jamieson reports that In February, Massachusetts settled a case against LPL, which agreed to pay at least $2 million in restitution and $500,000 in fines related to the sale of nontraded REITs. Alice’s adviser was with LPL.

State regulators in Massachusetts settled their cases against five high profile firms who agreed to pay a total of $6.1 million in restitution to elderly and other investors, and fines totaling $975,000.

How Financial Advisers Can Abuse Their Elderly Clients

The regulators are reported to have found out that in the REIT cases, people didn’t know what they were investing in. Seniors are particularly vulnerable. We think that is true for Alice. We also think her advisor, knowing her lack of sophistication, took advantage of her for the sake of his commission. His justification is that “she didn’t need the money” and that “she was investing for the benefit of her heirs.” Her family, particularly Mikol, thinks that is rather arrogant of him. How does he know whether she’ll live to be 100 and whether she will need the money? Furthermore, Alice is not investing “for the benefit of her heirs” when she is relying on her funds to take care of her own needs for the rest of her life.

We sent the advisor a letter with the Investment News article enclosed. We demanded that he get Alice out of this investment, repay the commission he took and take care of the penalty. We heard from him and his lawyer rather quickly. They offered to settle the matter with full restitution if Alice would refrain from filing a complaint form with FINRA.

Warn Your Vulnerable Aging Parents

Consumers, beware! Talking to your aging parent about illiquid investments is important. They will lose a lot if their funds are locked up, since a high price must be paid to recover the funds before the investment is scheduled to pay out. Broker-dealers are selling these products with substantial front-end commissions. These types of investments are not good for Alice and probably not good for many seniors out there. Warn your aging parents not to be fooled by the promise of 7% returns. They may not see the whole picture.

Contact Us For Advice On Preventing Elder Financial Abuse

If you are concerned about your aging parents’ finances, and you need advice about what to do to prevent elder financial abuse, we can help. Contact us today at and request your complimentary strategy session on parents’ finances. You can also download our eBook, How to Handle Money for Aging Loved Ones.


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