Financial Exploitation: How to Stay Safe From Fraud

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Financial exploitation is a growing threat affecting investors of all ages and wallet sizes. With the rise of sophisticated scams fueled by advancements in technology, such as artificial intelligence (AI), it is crucial for individuals to stay vigilant.

According to the FBI’s Elder Fraud Report, in 2023, more than 101,000 people age 60 and older were financially exploited, leading to nearly $3.4 billion in losses. Older adults, especially those experiencing physical or cognitive decline, are particularly vulnerable, with scams often perpetrated by trusted caregivers or even family members.

Forms of financial exploitation

To best combat the likelihood of falling victim to financial exploitation, it’s vital to understand the common forms that exist. Some of the more prominent forms include:

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Tech support fraud. Scammers pose as representatives from well-known software companies, claiming to fix non-existent technology issues. They gain access to victims’ computers, steal financial records and demand payment for fraudulent services. In 2023, losses tied to tech support fraud amounted to $590 million.
Investment fraud. Ponzi schemes, pump-and-dump schemes and fraudulent investment opportunities are examples of investment fraud. Scammers often promise guaranteed returns or use affinity fraud, where they exploit shared community ties to gain trust. Notably, in 2023, investment scams saw losses rising to $4.57 billion, a 38% increase from the previous year, largely driven by cryptocurrency scams.
Power of attorney abuse. Trusted individuals misuse their authority to make financial decisions on behalf of someone else, leading to mismanaged funds.
Medicare or Medicaid fraud. This involves billing for services not rendered, duplicate billing or fraudulent claims made in a client's name.
Homeowner scams. These include wire fraud, mortgage relief scams, reverse mortgage scams and home improvement scams.

The rapid adoption of AI has introduced new avenues for financial fraud. Scammers use AI to create convincing fake audio and video content, making it harder for victims to distinguish between legitimate and fraudulent communications.

The warning signs

To protect yourself and your loved ones, it is important to be aware of several warning signs. Look out for unusual account activity, such as large withdrawals or unexpected changes in account beneficiaries. Be cautious of suspicious communications, including unexpected calls or emails requesting personal information or remote access to computers. Changes in a family member's behavior or financial habits that seem out of character can also be indicators of financial exploitation.

Financial exploitation doesn't only cause immediate financial losses; it can have significant long-term consequences, particularly on wealth transfer plans. Assets lost through financial exploitation decrease the amount of wealth that may be passed on to the next generation and complicate health care and beneficiary-related matters.

Strategies for combating financial exploitation

When it comes to combating financial exploitation and the scams that currently exist, as well as new scams that haven’t even been thought of yet, education and awareness are crucial. It's important to educate yourself and your family members about common scams and the importance of cybersecurity. Recognizing phishing attempts, avoiding unsolicited contacts and understanding the risks of sharing personal information online are key steps. Maintaining a continuous, open dialogue with family members about financial exploitation is essential.

A prudent decision would be to obtain identity theft insurance, which covers expenses related to recovering your identity, legal fees and compensation for stolen funds. Use secure payment methods, such as loading credit cards into digital wallets, which offer additional protection against skimmers and fraudulent transactions. Regularly monitor your and your older loved ones' financial accounts for unusual activity and verify large transactions directly with financial institutions.

You might also consider developing a fraud prevention plan for your household. This might involve steps to take if you suspect fraud, such as contacting your bank’s fraud prevention line, checking online activity and filing reports with local law enforcement and insurance companies if necessary. Additionally, utilize secure communication channels and regularly update privacy settings on social media to limit exposure to potential scammers.

From an estate planning standpoint, there are several steps you can take to guard yourself — and your future heirs — against the damaging impacts of financial exploitation. Name a trusted contact for your investment accounts, designate a durable power of attorney and consider creating a revocable trust. Establishing and documenting health care directives allows you to memorialize your wishes for health care-related decisions. Early planning and consistent communication among advisers, clients and family members are key to ensuring these measures are effective.

Staying informed and supported

Staying informed about the latest scams and schemes is crucial. Sign up for updates from organizations like the Justice Department, the Federal Trade Commission and the Consumer Financial Protection Bureau. These organizations regularly publish information on new scams and provide tips on how to protect yourself.

Victim support services like Wayne State University’s SAFE program can assist scam victims in rebuilding their lives, offering guidance on filing police reports, dealing with credit agencies and setting up fraud alerts. This holistic approach helps victims not only recover financially but also rebuild their confidence and trust in financial systems.

Financial exploitation poses a significant threat to investors of all ages, with scammers continually evolving their tactics to take advantage of new technologies like AI. By staying informed about common scams, recognizing warning signs and implementing proactive measures, you can better protect yourself and your family from financial fraud. Open communication, education and the use of secure technologies are key to mitigating the risks and ensuring financial security.

The opinions and views expressed are as of the date published, are subject to change and may not reflect the views of others in the organization. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Matt Sommer is a Managing Director and Head of Specialist Consulting Group at Janus Henderson Investors. His team consists of various subject matter experts across several disciplines, including retirement planning, wealth advisory, practice management and investment strategies. They provide clients actionable insight and expertise they can implement into their business practice to retain and gain clients. Prior to joining Janus in 2010, Dr. Sommer spent 17 years at Morgan Stanley Wealth Management and its predecessors, Citi Global Wealth Management and Smith Barney, during which time his roles included director of financial planning and director of retirement planning.