Glass globe sitting on papers analyzing financial elder abuse

California May Require Broker-Dealers and Financial Advisers to Report Financial Elder Abuse

California’s financial elder abuse laws are some of the strictest in the nation. “Financial abuse” occurs when someone hides or obtains the property of an adult 65 or older for a wrongful use, with intent to defraud or by undue influence. “Wrongful use” simply means that the defendant was aware the conduct would harm the elder adult, meaning that virtually any intentional acts causing financial damage can be considered elder abuse.

Under current California law, only officers and employees of financial institutions (generally meaning banks or credit unions) are required to report financial elder abuse to local law enforcement or adult protective services agencies. If a “mandatory reporter” knows of activity that reasonably appears to be financial elder abuse, he or she must report it as promptly as practicable. If the reporter knows that the adult resides in a long-term care (LTC) facility, the report must be made to law enforcement or the local LTC ombudsman. California has a model form that reporters can use.

The state Legislature is considering a significant expansion of “mandatory reporters” under the financial elder abuse act. Under SB 496, broker-dealers and investment advisers would become mandatory reporters, subject to the same obligations, penalties and protections that apply to officers and employees of financial institutions. This has important ramifications for broker-dealers and investment advisers, particularly in areas of training and internal compliance. Failure to comply with reporting requirements can lead to civil liability, regulatory scrutiny and adverse publicity. 

If SB 496 becomes law, broker-dealers and investment advisers will need to educate their employees about how to identify potential elder abuse. This can be difficult, as it requires understanding a client’s health and mental state, financial literacy and business sophistication and the nature of his or her relations with friends and family members. Resources are available from federal regulators. For example, the Consumer Financial Protection Bureau has published recommendations for identifying and responding to financial elder abuse. And the S.E.C. recently published a white paper about financial elder abuse that identified warning signs such as:

  • Erratic transactional patterns;
  • Transactions that appear unusual for an elder adult;
  • Uncharacteristic attempts to transfer large sums of money; and
  • Account closures or withdrawals without regard to penalties.

Employees of mandatory reporters may also require training in how to identify investment vehicles that may be abusive, such as Ponzi schemes. The new California bill would require county adult protective services agencies to provide instructional materials to new mandatory reporters, but abusive financial arrangements come in so many different varieties that discretion and judgment by reporting employees will inevitably be required.

Mandatory reporting can seem like a “minefield,” and violations do carry penalties, but there are protections for reporters as well, including capped damages and mandatory confidentiality of reports. Also, reports are protected by California’s litigation privilege, meaning that they cannot lead to defamation or other tort claims by the alleged abuser against the reporter.If you need advice on mandatory reporting or any other aspect of California elder abuse law, the professionals at Capobianco Law Offices can help.