Exploitation of Vulnerable Adults

Lesson

Exploiting vulnerable adults is a significant ethical concern within financial advisory services. Advisors must take extra care with clients susceptible to age, illness, or diminished mental capacity. A breach of trust in these situations potentially harms the client and the advisor's reputation and could lead to legal repercussions.

Practice Question #1

As an investment adviser representative, Jane's elderly client shows diminished mental capacity. What is Jane's best course of action?

Terms

Vulnerable Adults:

Persons who cannot protect themselves due to age, illness, or mental capacity.

Exploitation:

The unethical act of using another person's resources for personal gain, often involving manipulation or coercion.

Elder Financial Abuse:

The illegal or improper use of a vulnerable adult's funds, property, or assets.

Capacity:

The ability of a person to understand the nature and consequences of their decisions.

Undue Influence:

The misuse of a position of trust, knowledge, or power for personal gain at the expense of another.

Guardianship:

Legal process designed to protect vulnerable individuals by assigning a responsible party to manage their affairs.

Mandatory Reporting:

Requirement for certain professionals to report suspected exploitation or abuse of vulnerable adults.

Practice Question #2

Under the Model Rules of Conduct, when is an investment adviser allowed to borrow money from a client who is a vulnerable adult?

Do Not Confuse With

Inheritance or Gifts:

Not all wealth transfers to advisors are exploitation. Sometimes, clients may willingly give gifts or leave an inheritance to advisors, but these situations can present conflicts of interest. They should be handled with great care to avoid any appearance of exploitation.

Practice Question #3

You suspect a colleague of yours is financially exploiting a vulnerable elderly client. What is the most appropriate action to take?

Historical Example

In a widely reported case, a renowned investment advisor targeted a wealthy widow with early signs of dementia. He manipulated her into changing her will, and investment plans to benefit him personally. The courts eventually ruled against him, returning the misappropriated funds to the rightful heirs and penalizing the advisor.

Real-World Example

Consider an advisor who discovers that an elderly client with diminished mental capacity has no close family. The advisor could manipulate the client into making investment decisions that disproportionately benefit the advisor. However, such exploitation would breach the advisor's fiduciary duties and could lead to legal consequences.