United States: Fraud-Free Sunsets: How Financial Professionals Can Deter Financial Elder Abuse In Florida And Reduce Their Own Liability Exposure

Last Updated: May 5 2017
Article by Nancy J. Faggianelli and John E. Clabby

Investment advisers, securities brokers, and other financial professionals who work directly with clients who are age 60 and older have two reasons to learn more about Florida's financial elder abuse laws. First, they may be in a position to detect, report, and stop financial abuse of their clients by unscrupulous relatives, friends, and others. Second, Florida's principal elder abuse statute provides powerful incentives to plaintiffs' attorneys, in a state with an aging population, to assert claims against financial professionals who serve elderly or disabled clients. 

What follows is a brief summary of Florida's financial elder abuse regime, and some practical advice for financial professionals and their firms seeking to help their customers and to reduce their own potential litigation risk. The preventative measures suggested below complement FINRA's recent examination priorities, guidance, and rules for protection of the elderly.

The Scope of Florida's Financial Elder Abuse Statute

The law may cover a wide range of conduct. To be successful against a financial professional who is in a business relationship with an elderly person, the wronged customer must typically prove that the professional (i) knowingly obtained or used an elderly person's funds or property; (ii) with the intent to temporarily or permanently deprive the elderly person of those funds or property, or to benefit someone other than the elderly person. See Fla. Stat. § 825.103. Plaintiffs' attorneys in Florida have used the statute to complain of alleged theft or conversion.

A plaintiff must prove actual impairment. An elderly person is not just anyone age 60 or older. Unlike other states, such as California, that define the protected status by age alone, Florida focuses on infirmity:

"Elderly person" means a person 60 years of age or older who is suffering from the infirmities of aging as manifested by advanced age or organic brain damage, or other physical, mental, or emotional dysfunctioning, to the extent that the ability of the person to provide adequately for the person's own care or protection is impaired.

Fla. Stat. § 825.101(4). Florida's statute also protects "disabled adults." This includes anyone suffering from physical or mental incapacitation or limitations that restrict the person's ability to perform the normal activities of daily living. Fla. Stat. § 825.101(3).

The statute provides for treble damages and attorney's fees. A financial professional who litigates such a case through to trial risks, in addition to damages equal to the investment loss or funds transferred, (i) "threefold the actual damages sustained," and (ii) attorney's fees and costs. Fla. Sta. § 772.11(1). Both treble damages and fee-shifting are thumbs on the scale to increase settlement value. A defendant can obtain attorney's fees only if she proves the claim "was without substantial fact or legal support." Fla. Sta. § 772.11(1).

Additionally, Florida law permits a court to move a civil trial up on the docket based on the court's evaluation of the aggrieved customer's age and health. See § 772.11(5). This power increases how quickly the costs of defense must be expended.

Whether a client is suffering from an infirmity or disability covered by the law is a question of fact, which may be easier to establish for an 80-year-old suffering from diagnosed dementia than for a 60-year-old who outwardly may appear to be healthy. That means the financial professional and her employer often must engage in costly discovery, including depositions and hiring medical experts, before the absence of such infirmity can be proven.

A claim can put immense pressure on a defendant to settle. With such incentives, it is not surprising that the plaintiffs' bar in Florida advertises heavily for such cases. Fraud cases aside, the bar has also shown a willingness to add a count of financial elder abuse to what would otherwise be professional liability or contract claims against a financial professional.

The risk of a multiplied damages award, a shortened discovery period, and shifting of attorney's fees, all can seriously impact a defendant's settlement calculation, even for a defendant who has done nothing wrong.

How to Foster a Culture of Detection, Reporting, and Prevention

Financial professionals and their firms who deal with the money or property of aged or disabled Floridians can take steps to protect their clients from unscrupulous third parties and to help reduce the risk that the professionals and their firms will be sued under the statute.

Educate employees on elder vulnerabilities. Perhaps the most important step is to educate employees on how age can impact some customers' decision-making, why the elderly are more vulnerable to scams, and that the amount and severity of the related exploitation is on the rise. Such education could include awareness training, coupled with training on the firm's procedures for detecting, reporting, and stopping third-party abuse. In addition to informing their customer-facing employees, firms might find it prudent to include their back office employees who see and process fund transfers and account files.

Document meetings with at-risk customers. For customer-facing employees, firms should emphasize recordkeeping and preserving communications. These employees should pay particular attention to who, besides the customer, attends meetings or participates in decisions around finances and investment product purchasing. For elderly clients or those who have medical or physical impairment, financial professionals might consider how they will document competence. In some cases, this may include requesting a letter from a medical professional attesting to continued competence in financial decision making.

Practice defensive advising and sales for higher-risk products. Similar to practicing "defensive medicine," firms might consider "defensive investment advising" for elderly and disabled clients. Certain products and transactions may tend to lead to this sort of litigation, whether warranted or not. For these, firms might find it desirable to offer specialized training or documentation requirements for the sales teams. Three examples are exotic or foreign CDs, penny stocks, and any transaction that requires borrowing against one product or investment to fund the purchase of a second.

Revisit fraud detection and reporting policies and procedures. Firms should review their policies and procedures, including for compliance with FINRA's new rules requiring reasonable efforts to obtain a "trusted contact person" for each accountholder and permitting temporary holds for certain transactions for elderly customers. Firms should further consider building out training, reporting, and authority lines for senior-related issues. The policies might cover how to handle receipt of new powers of attorney, requests for irregular transfers, suspected incompetence, and reporting of suspected financial elder abuse by a customer's relatives or associates or by other firm employees. Procedures for reporting of suspected abuse could include guidance for reporting "up" within the firm and reporting "out" to Florida's Adult Protective Services or to financial regulators.

Identify leaders on elder abuse issues within the firm. Depending on a firm's size, it might designate a unit or person to receive specialized training and be the internal source of advice or approvals on harder questions of customer competence. One purpose this serves is to support the customer-facing representatives, who face such decisions as whether to honor a power of attorney from a long-lost nephew to transfer several million dollars out of an elderly person's accounts. Firms might find that centralization helps them to give consistent answers across the firm on common issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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