Why Our Aging And Newly Widowed Parents Are At Special Risk

In many marriages for the oldest generation among us, the husband handled the money and the wife took care of house and kids. It worked for them, no matter who took care of finances. But when that knowledgable person dies, the other spouse is at risk for financial abuse of the worst kind.  A case on point was reported recently after an investigation and prosecution by the Financial Industry Regulatory Authority (FINRA) of a thieving broker who preyed on a blind widow.

The broker involved had complete discretion  to conduct trades on the account.  Also blind himself, her husband had trusted this broker for over 20 years.  A few weeks after his client's death, the broker seized the opportunity to cheat and steal from the also blind 77 year old widow. She  was very unsophisticated and had to rely on the broker for advice to keep her money safe. Due to poor health, she took his word for everything and followed all of his investment recommendations. She had been blind since the age of five, was near-deaf and wheelchair-bound requiring in-home care.

According to the FINRA complaint, the broker was alleged to have placed over 700 trades in more than 200 different securities between October 2012 and December 2015 for the elderly client’s three IRA accounts, over which he exercised sole control. Of course each trade gave this crook a commission and he vigorously pursued this practice known as "churning the account" for his exclusive benefit. He charged excessive commissions on her stock trades and increased them when he moved to a different firm. He put her into a very unsuitable investment in a variable annuity, generating a commission of over $10,000 on that trade alone. He grabbed $243,000 in commissions while his victim suffered almost $184,000 in net losses.

Could this happen to your aging loved one?  Of course it could. Remember that when you lose a parent, the surviving spouse may be more vulnerable than ever.  Even without the extreme complications of blindness and poor health, unsophisticated elders are easy targets for the kind of fraud this case illustrates. What can you do to prevent such abuse? Here are four ways to help keep your aging parent with investments safer.

1. After losing a parent, you have a difficult task ahead. Your own sense of loss has to be managed with a consciousness also that your widowed loved one may need your help, whether she handled finances before or not.  Keep the parent's financial vulnerability in mind. If the surviving spouse has not handled finances before, take charge as quickly as you can.
2. If a broker-dealer is managing their investment portfolio, find out if the broker has any past bad acts. You do so at BrokerCheck.com.  This is FINRA's public record source and you can find out if the person in charge of the funds for your loved one is a bad apple. Many of the FINRA prosecutions involve brokers who have committed fraud or other illegal activities before. If you see past prosecutions, urge your aging parent to change financial advisors or brokers quickly.
3. Encourage your aging parent to give you access online to the information about the investments. You can monitor what is being traded or charged.  Look for high frequency of trading, which should not happen. And ask questions about any recommendations the broker makes for investments notoriously dangerous or unsuitable for seniors such as variable annuities or non traded real estate investment trusts (REITs).
4. If your aging parent will allow it, get a power of attorney to be allowed to speak with and give instructions to any financial professional who advises your parent. During the grieving process after losing a spouse your parent may be very impaired. This problem can be significantly worsened if your loved one had memory loss or confusion issues beforehand.  It is not safe for an aging parent in a vulnerable state of mind to allow anyone to make financial decisions for her without having those decisions checked out and approved by someone who cares about her welfare.

The case of the ruthless broker who swindled a blind widow with serious health concerns out of her money shows us that some greedy professionals will stop at nothing.  I have heard of similar scenarios from upset family members at AgingParents.com where I work with families on age-related issues. Elder fraud by brokers is not extremely rare. Stealing from elders is just too easy and even FINRA prosecutions don't always stop recurrent fraud. Fortunately, most financial professionals do not fall into that thief category, but how can you know whom to trust? In this case a 21 year relationship with the broker was no measure of trust. Nor was the fact that the couple had given him sole discretion over their funds. The presence of a financial professional in aging parents' lives over years is no assurance that they'll do what is best for your loved one going forward.

Imagine that the widow in this case had a vigilant adult child who immediately went to BrokerCheck.com after the Dad passed and searched the person in charge of Mom's IRAs. That adult child would have seen that the broker in question had a bad past and could have talked the Mom into getting her funds into safer hands immediately.  It only takes minutes to do a search of the broker's public record of prosecutions and consumer complaints.

Better yet, imagine that the vigilant adult child had been monitoring the parents' financial lives online for a few years and knew what was going on with their accounts.  That child could have stopped the thief cold.  Why didn't the broker's own organization catch him sooner?  It is obvious that the monitoring and supervision of all brokers is inadequate to sufficiently protect seniors.  Keeping them safer has to be up to the people in their lives who care about them.