Banks Monitor Older Customers for Cognitive Decline
Financial institutions are watching older customers for any early signs that cognitive impairment could put them at risk of financial exploitation.
Published in the Wall Street Journal
By Lisa Ward 20 November 2018
Banks, brokerage firms and other financial institutions are starting to monitor older customers for mental capacity and susceptibility to fraud.
But then the question is this: Once a financial institution suspects that a customer is becoming cognitively impaired or increasingly at risk of fraud, what does it do with this information?
Financial exploitation of seniors is an underreported problem. The Securities and Exchange Commission released a report in June which said as much as 6.6% of the elderly in the U.S. had experienced financial exploitation in the previous 12 months.
Missed payments, duplicate checks and confusion about balances, meanwhile, can be the earliest signs that a customer is in cognitive decline, and thus at greater risk. Some financial institutions are beginning to share their misgivings with family members and government officials when they see warning signs.
Until recently many institutions thought privacy laws prevented them from taking these actions unless they suspected illicit activity. Some were unclear whether they should contact agencies, like Adult Protective Services, not traditionally considered law enforcement, with concerns about financial exploitation and cognitive impairment, says Ron Long, head of regulatory affairs and elder client initiatives at Wells Fargo Advisors.
A new federal regulation, signed into law in May, protects financial institutions from litigation should they report concerns about financial exploitation of seniors to government agencies. The regulation does not require that such concerns be reported.
But some experts would like the institutions to go further, and share such cocerns about possible fraud and financial exploitation with one another (as they do in money-laundering cases). For example, legislative changes could allow financial institutions to share information about financial exploitation via the U.S. Treasury Department’s Financial Crimes Enforcement Network. The system is currently used to share data about money laundering and terrorist financing. The hope is that by catching cognitive changes early on, customers can be saved from losing part or all of their life savings.
“The crime just doesn’t happen at one institution—it happens across accounts and across institutions,” says Larry Santucci, senior research fellow, Consumer Finance Institute at the Philadelphia Federal Reserve Bank. Mr. Santucci researches and writes about how financial institutions could better share information about elder fraud.
“Reporting obligations vary by state and can be murky,” he says. State law can also dictate how institutions respond. For instance, more than a dozen states allow investment advisory firms to place temporary holds on requests to disperse funds if financial exploitation is suspected. But there is no requirement to do so.
“Clients have a right to make poor financial decisions,” says Marguerite DeLiema, a research scholar at the Stanford Center on Longevity, who says financial institutions can find themselves in a delicate balancing act since they are also required to follow clients’ instructions.
While responsibility to report on the mental health of aging customers remains somewhat of a gray area, some companies are beefing up efforts to detect trouble spots. For example, with more computing power and software driven by artificial intelligence, banks now can monitor vast amounts of data and account activity that may reveal cognitive declines, or signs that a customer may be a victim of criminal activity, such as uncharacteristic withdrawals or ATM transactions in the middle of the night.
The hope is that computer learning will find previously unseen patterns and anomalies. Some institutions are using machine learning—computer programs that find patterns and take actions based on crunching massive amounts of customer data—to identify which accounts are most vulnerable.
Researchers at University College Dublin used machine learning to sift through 250 million transactions involving accounts of customers over age 70 at a major U.S. financial institution. According to a recent report on the results, the institution’s previous fraud-detection system had sent out 19,395 alerts to clients based on suspicious activity—though human analysts afterward deemed only 74 of the incidents truly suspicious. By contrast, the machine-learning algorithm independently sent out 8,340 alerts, and identified 66 of those 74 suspicious activities as well as three other fraudulent cases initially missed by the analysts.
“This constitutes a very significant saving in terms of human resources, resources which can be better spent focusing on assessing suspicious cases to establish whether or not they are fraudulent,” says Prof. Cal B. Muckley, a co-author of the paper and the department chair in operational risk, banking and finance at University College Dublin.
Financial institutions also are training staff, especially those who interact with customers, to spot red flags and question unusual patterns of behavior. But sometimes discussing such problems directly with customers can be difficult.
“Customers are often in denial or embarrassed,” says Laurel Sykes, chief risk officer at California’s Montecito Bank & Trust, adding the goal is to get someone to slow down and grasp what is happening before the money walks out the door.
Many organizations are asking new clients for emergency contacts should anything go wrong. And financial institutions are sometimes asking older clients if they want to allow family members to view their accounts without the ability to make financial decisions as an added layer of protection.
But sometimes relatives are the perpetrators of fraud. The National Adult Protective Services Association, a nonprofit focused on the mistreatment of the elderly and other vulnerable adults, estimates that 90% of elder financial exploitation is committed by family members, caretakers or a trusted professional, like a pastor, doctor or attorney using an elderly person’s assets for their own enrichment without the person’s consent.
As a further protection, some say health-care professionals should be notified when an older financial client begins to show signs of cognitive decline. Jason Karlawish, a professor at the University of Pennsylvania’s Perelman School of Medicine, says this would give the doctors another way to diagnose cognitive decline, and better protect account holders.
Currently there is no single test that can predict dementia, says Dr. Karlawish, who is also co- associate director of Penn’s Alzheimer’s disease Core Center and co-director of Penn’s Memory Center. Seeing big deviations in bank and brokerage accounts, he says, would provide an additional method of diagnosis, ideally sooner than more traditional methods, though no study has proven this hypothesis, he says. “It’s about picking up cognitive problems in a more systematic way,” says Dr. Karlawish, who adds that by the time some patients get to him now, they have already lost a good deal of their savings.
Ms. Ward is a writer in Mendham, N.J. Email: firstname.lastname@example.org. Read full article here.
Cal Muckley is a Professor of Operational Risk in Banking and Finance at the UCD College of Business and a Fellow at the UCD Geary Institute. He is also the Director of the UCD Smurfit School’s MBA Programme. Learn more about the programme here.