Elder Abuse and Vulnerable Clients – An Adviser’s Perspective provides some fascinating statistics about dependency in ageing Australians, suggesting that a 65-year-old will spend more than 55 per cent of their remaining years in partial or heavy dependency relationships with family, friends and service providers.

Quite rightly, there is growing concern about the vulnerability of these clients to abuse via these relationships and the term Elder Abuse has been coined.

Evidence of Elder Abuse in Australia is growing and in recent years the Australian Securities and Investments Commission (ASIC) has mandated that financial advisers and Australian Financial Services Licensees (AFSLs) keep better records of advice provided to vulnerable clients.

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Yet the ASIC guidance is principles-based rather than prescriptive, which means the advice profession is left to figure out who is vulnerable and how to manage those situations.

There are several difficulties with the current framework and expectation around dealing with Vulnerable Clients and Elder Abuse:

  • The absence of a Legal Capacity test for advisers;
  • It is very difficult to reject the instruction of someone operating with a Power of Attorney (PoA); and
  • Absence of a reporting authority to which suspect situations can be referred.

Advisers are held to a very high standard when providing advice and this standard is higher for vulnerable clients.

The proactive adviser must therefore take detailed file notes as evidence that they have assessed capacity and vulnerability. Failure to do so will become an increasingly significant compliant risk.

In practice we see a few common scenarios:

  • Family or close personal friends using their relationship with the elderly or vulnerable to ‘borrow’ money or gain financial advantage. Often this type of loan or advantage is not repaid;
  • Service providers in a position of trust or dominance ‘persuading’ clients to make financial commitments that are unnecessary or not in their best interest; and
  • Organisations and institutions with whom contractual arrangements exist that charge fees or provide services that are excessive and inappropriate.

A term commonly used in legislation and ethics is “Unconscionable Conduct,” which loosely means one party in a relationship holding a position of superiority or advantage and using that position to benefit themselves over the interests of the other party(s).

All three scenarios contain elements of Legal Capacity and Unconscionable Conduct by individuals or institutions.

Case study 1: Joan

Joan had recently been supported into an aged care facility in the Hunter Valley by her children who lived several hours away in Wollongong.

This had been arranged quite quickly after a family visit at Christmas where her children were shocked to see how she was living.

The aged care facility provided all necessary forms but, somewhat intimidated by the paperwork, the children omitted to properly complete the Centrelink income and assets sections and Joan was asked to pay the maximum Means Tested Care Fee of more than $26,000 pa.

After paying the RAD (bond) Joan had only modest means and was running out of money quickly.

Sadly, the children were forced to arrange the sale of the family home, and once sold they sought financial advice only to discover that the aged care facility had been incorrectly calculating the means-tested fees.

To add fuel to the fire, the house sale proceeds now meant a reduction in aged pension and continuity of the higher care fee.

Conversations with the financial controller of the aged care facility showed that they were aware of Joan’s position but felt it was not their responsibility to minimise care fees for their residents, and they were within their contractual rights to charge the maximum fee to Joan.

Had the family sought advice the fees would not have been levied, however, neither the aged care facility nor Centrelink feel a need to provide such a service.

We have developed some guidelines for our financial advisers to consider when dealing with potentially vulnerable clients:

  1. Legal Capacity: does the client possess it?
  2. Disadvantage: is the client unable to properly consider their decision?
  3. Pressure: from a third party can distort the client’s decision;
  4. Power of Attorney: can be used unscrupulously; and
  5. Withholding Information: that might change the client’s decision.

Case study 2: Jerry

Jerry was a single man. He had lost his wife several years earlier shortly after having a massive stroke.

He was confined to a wheelchair and required daily care from a local care provider service. Family visited regularly enough but his care providers spent time with him every week, taking him shopping and to restaurants.

He had a close bond with one carer in particular, Janine, and Jerry spoke often of how caring and supportive she was.  

In time his medical condition worsened.

Jerry’s son found him a place in an aged care facility and began to tidy up his affairs. Strange transactions began to be uncovered from Jerry & Janine’s weekly trips to the local Westfield.

Systematically, cash withdrawals of $100, $150 and $200 were being made with each trip despite Jerry having no use for large amounts of cash.

Jerry’s son Liam questioned his dad who said happily that Jerry sat outside the supermarket while Janine collected groceries and paid with Jerry’s EFTPOS card. Sometimes Janine “accidently” kept the card over the weekend.

A pattern of cash withdrawals made at night and in pubs and clubs that Jerry never visited began to appear.  

Over the course of three years the family estimated that more than $20,000 was taken.

When accused via her employer Janine promptly quit her job and disappeared while the employer “lawyered up” straight away, suggesting that any gifts from Jerry to Janine were personal in nature and not their concern.

The money was never recovered.

The financial adviser had been monitoring Jerry’s annual spending but not his weekly transactions and so the $7,000+ pa went unnoticed.

Had a cashflow monitoring service been in place with regular reporting to Jerry and his family this abuse might have been quickly identified.

Legal Capacity & File Notes

The NSW Attorney General (AG) defines capacity as:

“People who have capacity are able to live their lives independently. They can decide what is best for themselves and can either take or leave the advice of others.”

An adviser file note could address the following:

  • Age: are over a certain age e.g. 85 years; 
  • Language: Does not understand English sufficiently to be able to understand the advice or recommendations; 
  • Physical Impairment: is there a physical disability that could impair their ability to understand, e.g. blindness, deafness; 
  • Mental Impairment: is there mental impairment (e.g. dementia, depression) suggesting reduced comprehension;
  • Substance: is the client under the influence of alcohol or drugs, limiting ability to understand and/or make an informed decision; and
  • Authority: is someone else acting via a genuine (or implied) PoA, Trustee or Guardian authority?

The NSW AG produces a very useful 180 page document to support all advisers in this space.

Decision Criteria

It is important to note that some cultures actively include a wider family network in major decisions and while this may run counter to the NSW AG’S definition it is legitimate and appropriate to include these factors in your advice process and file notes.

The NSW AG outlines the following basic principles when assessing capacity for a client and they should be present in your file notes. Does the vulnerable person:

  1. Understand the facts involved in the decision?
  2. Know the main choices that exist?
  3. Weigh up the consequences of the choices?
  4. Understand how the consequences affect them? and
  5. Have the ability to communicate their decision?

A capacity assessment table can be useful when determining and recording the above. You can request one by email via the website.

Vulnerability with Money & Property

The NSW AG discusses four relevant areas of concern for Elder Abuse/Vulnerability:

1) Contracts: Often seen in the provision of services to the elderly from tradesmen, care providers and advisers; 
2) Ongoing Management: Family and close friends are often in a position to influence a vulnerable person.  Sometimes Powers of Attorney are used and in other situations physical or emotional coercion exists. You will need to consider two types of questions.
a. Can the person independently manage their own property and affairs?
b. If not, is there a risk that they may be disadvantaged, harmed, or their money or property wasted or lost?
3)&4) Powers of Attorney & Wills: Advisers cannot prepare PoAs and Wills, however, with guidance from the NSWAG we can be alert to when clients may be vulnerable to influence.

What Next?

Advisers and advice businesses need to work with checklists and template file notes similar to those provided by the NSW AG.

Their CRM software needs to identify and remind advisers that vulnerable clients need to have a higher level of scrutiny and service.

It is critical that the file notes reflect client understanding which is demonstrated with appropriate quotes from the client.  

It goes without saying that any appearance of inappropriate coercion or self-serving influence over the client should be met with the adviser:

  • declining to render service; and/or
  • seeking advice from their Professional Standards team; and/or
  • contacting appropriate authorities. 

One practical principal the author applies in his practice when dealing with Powers of Attorney is to check that the person acting with the PoA is doing so with approval of the primary client, or if that is not possible then check with the broader family.

A time-stamped file note is taken every two years to this effect.

With the growing numbers of ageing clients in Australia the government should give thought to passing specific legislation to protect the elderly.

That legislation might also include the creation of a new body empowered to investigate people, organisations and service providers who stand accused of Elder Abuse

 Appropriate powers to fine those guilty and refer them to the police would make sense. It is not enough for organisations to hide behind contractual rights (Joan’s story) or claim a lack of responsibility to monitor unconscionable conduct (Jerry’s story).

 "...A nation's greatness is measured by how it treats its weakest members..."

– Mahatma Ghandi

Good advice puts PEOPLE first. 

Gil Gordon the managing director of Estate Planning for Life, a provider of online estate planning solutions for professional advisers.

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