Credit card fraud. Phishing. Computer hacking. Financial scams and schemes come in many different forms, and any of us – regardless of age – can become a victim.

But for older adults – particularly those experiencing cognitive and/or physical decline – the likelihood of being exploited is far greater. What’s more, it is often perpetrated by those who are entrusted with vulnerable individuals’ care – including, in some cases, their own family members.

What is financial exploitation and what forms can it take?

Financial exploitation is defined as the misappropriation or misuse of the funds of an older and/or vulnerable adult, and includes fraud, family or friend exploitation, and exploitation by staff or professionals. According to the Federal Bureau of Investigation’s (FBI) Elder Fraud Report, in 2022, more than 92,000 people age 60 and older were financially exploited, leading to nearly $1.7 billion in losses.¹

Financial entitlement and coercion are the mechanisms used to financially exploit an older person. Theft and scams are the means through which the money is stolen.

Chief among those scams is tech support fraud, which is the most widely reported form of exploitation among over-60 victims. These scammers pose as experts from well-known software companies, such as Apple or Microsoft, and call, email, or text the victim offering to fix non-existent technology issues or renew fraudulent software or security subscriptions. They often hack into a person’s system to cause the problem that they later offer to fix – at a price. And while they are inside the victim’s computer, they can download financial records and passwords to steal even more.

The FBI Elder Fraud Report found that losses tied to tech support fraud amounted to nearly $350 million in 2021, a 137% increase from the previous year.²

What makes someone susceptible to financial exploitation?

There are several factors that have been shown to increase the risk of being financially exploited. Cognitive decline is clearly a big one – and we’ll expand on that shortly – but loneliness and psychological vulnerability also make individuals more susceptible. One study found that fraud was more prevalent in people with the highest levels of depression and the lowest fulfillment of social needs.³

Loss of mobility and increased dependency on others are other significant risk factors. Older adults who need assistance with activities of daily life or who report being in poor health are more likely to be targets of financial exploitation by family members. When a person needs assistance, such as with shopping or preparing meals, the caregiver may gain greater access to the elderly person’s finances, opening the door to exploitation.⁴

A closer look at cognitive decline

An important thing to understand about cognitive decline is that it occurs on a continuum. One does not develop dementia – which is a collection of symptoms related to cognitive decline – overnight. Rather, it begins with a phase of mild cognitive impairment during which deficits in memory or executive functioning are present, but they don’t interfere with the activities of daily living.

This mild phase can present the significant challenges because individuals experiencing mild impairment can call on their reserves to mask their symptoms. Therefore, a professional or family member who doesn’t spend considerable time with the person or doesn’t know how to ask the right questions may not realize the person has dementia.

Of course, cognitive abilities vary, and so does the ability to manage money. In fact, 95% of adults aged 70 and older manage debt, pay bills, and maintain good credit standing just as well as 50-year-olds. But if cognitive impairment such as mild cognitive impairment or Alzheimer’s disease appears, those rates plummet.⁵

Helping advisors and their clients mitigate the risk of financial exploitation

Financial advisors are in a unique position to identify at-risk older adults and help prevent financial exploitation, or to intervene early when it’s detected. Warning signs could include a long-standing client requesting – seemingly out of the blue – to retitle or their accounts or change their IRA beneficiaries. Large or unusual withdrawals are another red flag.

Cognitive decline presents a unique risk to aging investors that has yet to be meaningfully addressed by the financial services industry. On that note, I’m proud to report that Janus Henderson recently formed an exclusive partnership with Wayne State University (WSU) to help financial professionals protect older adult investors from financial exploitation. Working together with WSU, we hope to help protect more investors by providing tools and resources advisors can use to educate their clients and assess their vulnerability.