Background:

This week’s Research Minute highlights the unique challenges of combating financial fraud and explores possible innovative approaches to safeguard retirement accounts from manipulated decision-making. Financial fraud is widespread, affecting many Americans, thus making prevention crucial. This Research Minute is a complement to the latest RRC Pod podcast featuring financial fraud expert, Professor Marti DeLiema of the University of Minnesota.

Findings:

The AARP reports that older Americans lose $28.3 billion annually to elder financial exploitation and fraud, affecting individuals across all socioeconomic groups. While older populations are known targets for financial fraud scams, financial fraud actually disproportionately targets middle-aged individuals. New technologies like artificial intelligence contribute to the credibility of scams, utilizing visual and audio deep fakes. Additionally, cryptocurrency facilitates anonymous, convenient, and instantaneous fraud, challenging law enforcement’s ability to trace and/or reverse money transfers.

Professor DeLiema suggests some best practices in combating financial fraud, some of which can be extended to the DC industry, especially for advisors. Concepts to consider include:

- Train front-line workers on the symptoms of financial fraud and vulnerabilities that can exacerbate the likelihood of experiencing a financial fraud scam, such as loneliness, cognitive impairment, and dementia. Specifically, they should have a clear understanding of their client's behaviors and risk tolerance.

- Be attentive to potential behavior changes and be aware of the individuals present in the client's life. Include tools and training for plan participants as well as methods they can utilize to better assess their own risk factors and potential fraudulent practices.

- Reduce stigma by making this a normalized conversation, and encourage participants to reach out for assistance.

- Protect retirement accounts from manipulated decision-making by creating friction, such as waiting periods, before clients can remove or transfer funds.

- Focus on younger clients who already have an appetite for account protections by getting them to opt-in to these protections.

Bottom Line:

Financial fraud scams are like a cat and mouse game, often impacting the victim before protections can be put in place to help prevent them. The topic of theft, either individually or on a larger scale, has been and will continue to be top of mind in the DC industry as we look to ensure long-term financial stability.

Listen to the latest RRC Pod featuring Dr. Marti DeLiema, moderated by Dominika Turkcan, DCIIA RRC, to learn more about the topic. You can also join the conversation on LinkedIn.

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