December 30, 2016 9:00 AM

Beyond bear market possibilities, implications of the DOL's fiduciary rule, and how to create a retirement income strategy that provides sustainable income, financial advisors who work with retirees must navigate the ethical concerns that confront their clients. According to a survey conducted by The American College New York Life Center for Retirement Income and its Cary M. Maguire Center for Ethics in Financial Services, retirement income planners’ top ethical concern is protecting clients from financial elder abuse.

Older man reading the newspaper

According to the survey, 82 percent of the advisors confirmed that elder abuse was the number one ethical concern facing their clients, but expressed concern about other areas as well: 

  • While only 6 percent believed that outright lying occurred by retirement income professionals, 64 percent of respondents were worried how advisors’ inadequate training and lack of comprehensive retirement income knowledge could affect clients  
  • 66 percent of advisors were concerned that companies pressure their advisors to make sales at the expense of their clients’ best interests
  • 68 percent worried that retirement income advisors aren’t keeping up with legal changes that can impact their clients’ retirement income plans 

Advisors and retirement income planners who want to help clients minimize their risk of falling victim to financial elder abuse can address all three of their top ethical concerns with the right knowledge. 

Tackle Financial Elder Abuse With Eyes Wide Open 

Defined as the illegal or improper use of a person’s finances or property by another person, financial elder abuse is predominantly perpetrated by the elder’s guardian or family member to target their wealth. However, financial elder abuse can also happen at the hands of a dishonest telemarketer, scammer, or even an undereducated advisor. Despite this being the number one ethical concern among advisors who do retirement income planning, only 28 percent believe that financial elder abuse is a common occurrence, perhaps because only one in every six cases of this type of abuse are ever reported. A 2011 study by The MetLife Mature Market Institute found financial losses from elder abuse totaled $2.9 billion, a number that increased by 12 percent from a similar study done three years prior.  

While more of an extreme case, this example represents the potential financial devastation caused by financial elder abuse. A married couple from Tacoma, Wash., had an ample nest egg saved for retirement but became afflicted with the early stages of advanced dementia and required a live-in caregiver. The caregiver turned out to be a con artist who, according to their daughter, “took everything,” rendering them penniless and homeless in a matter of 10 months.  

Situations like these present ethical and often emotional dilemmas for financial planners. Professor Jamie Hopkins, RICP®, Associate Director of the New York Life Center for Retirement Income Planning at The College, explained that retirement income planning can be extraordinarily challenging because professionals are expected to manage a variety of client risks, legal changes, and ethical issues while developing a comprehensive plan. “The survey responses show that advisors are well aware of the challenges,” said Professor Hopkins, “but worry that the profession as a whole lacks the proper training and education required to effectively serve clients.”

Stay True to The Best Interest of The Client

A staggering 90 percent of advisors surveyed by The American College New York Life Center for Retirement Income have felt company pressure to hit quotas or goals and 65 percent believe such pressure may violate their clients’ best interests.

 Furthermore, 66 percent worry that competitors are misrepresenting retirement income products to the general public, and 57 percent say planners aren’t giving clients realistic expectations about portfolio and product performance. Misrepresentations of retirement income products, incentives, and questionable compensation are all problems The DOL’s Conflict of Interest Rule attempts to address this problem.

While danger from malicious predators is a reality that must be acknowledged, financial services professionals worry about harm caused by seemingly innocent oversights. “Practitioners are concerned that harm will be caused not through deliberate malfeasance, but through lack of education,” said Julie Ragatz, Professor of Ethics and Director of Cary M. Maguire Center for Ethics in Financial Services.

Fight the Negative Effects of Financial Elder Abuse With Education 

According to the survey, respondents believe that knowledge of Social Security and Medicare is very important for a retirement planner.  However, most also say that typical financial services professionals’ knowledge of Social Security and Medicare is quite low.  

  • Only 8 percent believe their peers are extremely knowledgeable about Social Security
  • Only 10 percent believe retirement income professionals are extremely knowledgeable about tax issues
  • Only 2 percent think financial professionals are extremely knowledgeable about Medicare

Advisors and retirement income planners can improve these numbers by strengthening their body of knowledge and competency in these areas. The key takeaways from the survey underscore the importance of advisors and clients having sufficient knowledge about retirement income and general financial planning strategies to make more informed decisions and achieve more successful outcomes.

Increasing your professional expertise with comprehensive education about complex retirement income topics, like Social Security, taxes and Medicare, will help you help clients avoid potentially predatory situations and people. Working with a competent financial advisor to craft a goal-based, sustainable retirement income plan will give clients peace of mind. With the confidence of a formalized and customized plan, clients may be less likely to pursue and fall victim to unsavory, potentially disastrous  forms of financial elder abuse.

Advisors who are interested in learning more about how to serve the retirement income and planning needs of their clients can educate themselves with our SlideShare, Retirement Planning for Longer Life Expectancy.

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