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What Behavioral Finance Has to Say about Elder Financial Fraud

Older individuals may isolate themselves in order to avoid elder financial fraud. However, research suggests that isolation can actually cause, rather than prevent, victimization. As a result, behavioral finance suggests an alternative approach: deepen connections with others to enable information flow and facilitate collaborative decision making. While seemingly counterintuitive, this intentional openness can be a way for families to prevent, detect, and recover from elder fraud.

Scammers. Fraudsters. Perpetrators. What comes to mind when you think of them? When you think of scammers, fraudsters, and perpetrators who focus on older human beings, who are you picturing?

People can find this question difficult to wrap their minds around. It can feel uncomfortable to imagine someone preying on an individual who is frail, defenseless, isolated, overly trusting, or in some cases, may be experiencing cognitive decline.1 However, it is these types of traits that make older people potential targets. And the targets could be your parents, siblings, aunt, uncle, friend, neighbor, or even you.

A recent Wall Street Journal article reported that 43% of older Americans exhibit one or more signs of financial victimization.2 The intent of this whitepaper is not to instill fear; rather, it is meant to empower the reader with facts and potential ways forward.

When thinking about preventing, detecting, and recovering from elder financial fraud, it may be useful to consider the following:

Broaden your frame.
Potential fraudsters are not just limited to strangers or criminals. They can include service providers, family, friends, caretakers, and other individuals close to the victim.

Deepen and expand your network.
Challenge yourself to identify people in your network that you can rely on to help you in times of need. These individuals can be your family members and friends, as well as others in your network such as trusted professionals.

Meet often with your network.
Open, authentic and systematic communication around values and goals with trusted family members, friends, and professionals can decrease isolation. Decreasing isolation can increase the ability for others to help detect changes in behavior or decision-making that could lead to, or indicate, fraud.

Although it is often difficult to hear about, this paper will focus on what a potential victimizer – rather than what the victim – looks like. This approach can help lead to immediately implementable solutions. How? By raising awareness of who can perpetrate these crimes, it may challenge perspectives and widen the frame for methods that can help families prevent, detect, and recover from elder fraud.

Widening the frame

Before addressing what a potential victimizer looks like, let’s take a step back and consider a classic behavioral finance scenario completely unrelated to elder fraud:

Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.3

Now, which is more probable?
1. Linda is a bank teller.
2. Linda is a bank teller and is active in the feminist movement.

Most people (85%) answer #2. In their famous study, Amos Tversky and Daniel Kahneman illustrate that it is not mathematically possible for it to be more probable that Linda is a bank teller in addition to having another attribute (this is known as the conjunction fallacy). In fact, it is usually less, not more, probable (see Figure 1). We are said to make the error because the description of Linda feels like that of a “feminist,” so it leads us to focus more narrowly on that representation than we should. This “representativeness heuristic” is a well-documented behavioral tendency.4

Similarly, the perception that financial fraud is perpetrated only by strangers or career criminals can be dangerous. Because this representation limits the frame of who could commit such crimes – often to individuals such as telephone and online scammers – many people over-rely on these stereotypes to detect potential situations of fraud. This may allow more common, but less “representative” types of fraud to go undetected.

Consider examples of potential fraud that Florida State University’s Department of Criminology uncovered in a local elder community through research sponsored by Merrill Lynch Wealth Management and released in 2016. Sixty-seven percent of the reported fraud incidents involved face-to-face interactions with a local service provider – whether it related to household repairs, lawn maintenance, or auto-care. A far lower 16% of incidents related to misleading telephone calls, mailings, and advertisements, with only 4.5% representing the lottery and sweepstakes scams we hear so much about.5

Fraudsters can also be family members, which is often one of the most delicate topics to address. A study of 201 financial advisors at Merrill Lynch Wealth Management in October 20156 found that when elder fraud was suspected, the most common potential perpetrator was a family member (see Figure 2). This finding need not suggest that family members should be suspected fraudsters. Rather it highlights the importance of recognizing that families are not immune to potential fraud within the familial circle. And consistent with the research of Florida State University, it appears that online and telephone scams comprise the least frequent “red flags” that financial advisors saw (4.5%). Instead, suspected fraud took on a more subtle form, such as a change in core influencers and decision makers, or a change in gifting or investment behavior (see Figure 3). What can we learn from this data? When we think about financial fraud – especially with older individuals – we need to broaden our frame. A perpetrator of fraud can be almost anyone.

From awareness to action

Now that we know that financial fraud can actually be carried out by people close to the older individual – for example, a caregiver, a family member, a friend – it raises the question: Does everyone pose a threat?

Rather than being overwhelmed by this possibility, it might be helpful instead to reframe this question in a more positive way and identify your primary supporters who can help you prevent, detect, and/or recover from fraud. Just like with investments, concentrating your relationships in just one area can create risks, whereas diversification across multiple human beings may help mitigate those risks. To evaluate this idea, it can be useful to consider who your confidants truly are under times of stress and concern. Sociologists refer to this as your “core discussion network”:

1. Who is in your core discussion network?
2. When was the last time you talked to them about something important to you?

In 2015, Harvard Magazine reported that Harvard sociologist Mario Luis Small has been challenging a major assumption that these core discussion networks are made up of family and friends. In fact, Small found that for 45% of the respondents in his research, the individuals they were confiding in were not considered to be personally important to them. Instead, they were service providers, trainers, doctors, financial advisors, and the like. There were a range of reasons why professionals were chosen, from subject matter expertise to convenience to avoidance (that is, the desire to discuss a sensitive topic with someone other than the people closest to them). Furthermore, Harvard Magazine reported that, for most people, the core discussion network for the average person averages three individuals. However, one-fifth of people have no one in their core discussion network.7

There are clear implications for elder fraud. If an older individual has no one in their core discussion network, to whom would they reach out for help if they were being defrauded? If an elder person sought to avoid worrying a family member about concerns they were having, might they unsuspectingly build a relationship with a seemingly well-intended fraudster?

Consider where you fall in terms of your core discussion network and the people within that network:

1. How well do you know the individuals?
2. Why do you share closely held information with them?
3. Are they the right people to be confiding in?

If it is difficult to identify more than one individual who you trust and can confidently say has your best interests in mind, then this may present an opportunity. The opportunity is to broaden your network, deepen connections and increase information flow, which can help with fraud prevention, detection, and recovery. And the time to start is now – acting early can help prevent elder fraud from occurring in the first place.


In keeping with the notion of strengthening one’s core discussion network, researchers conducting the aforementioned study at Florida State University were able to identify a turning point where individuals became more vulnerable to fraud. What many of these victims of financial fraud had in common was that they were isolated. This could be as a result of the loss of a spouse, a relocation to an area without friends or a social support network, sustained health problems, or other factors. And as complicated or difficult as preventing isolation might be in some cases, often it’s within each individual’s control how deep and communicative their relationships are with their family members, friends, and trusted advisors. Rather than reinforcing walls to stay safe, consider ways in which older individuals can nurture relationships in their family and communities.8

A key way that families can do this is by holding quarterly or annual meetings with family members in which there is open and honest dialogue about financial questions and concerns. These conversations can start with values about good financial decisionmaking and how families can support each other in making sound decisions. This can open the door to dialogue that can prevent feelings of isolation and, because of the regular communication, can also help identify changes in decision-making ability (e.g., cognitive decline).9 Connecting these family discussions to consistently scheduled goals-based conversations with a financial advisor can also support prevention. Identifying personally meaningful intent for wealth with an advisor – and investing toward that intent – provides a guidepost that may help detect changes in behavior inconsistent with what has been expressed by the core decision maker(s).10 If there are any irregular or unexpected decisions being made, this can enable important conversations to confirm that these decisions are not being influenced by a fraudster.

Staying close

Maintaining a strong social, communal, and family network can encourage financial security and longevity for seniors. It’s an intuitive concept, but in practice it’s much more nuanced. Consider the dream of many retirees to relocate from a land of harsh winters to a more golf-friendly climate. As alluring as this sounds, many older individuals are choosing to tough out the cold months in order to stay close to their families, their friends, and the communities they helped to build over the years.11 Yet some seniors choose to pick up and head south or west – and understandably so. Either way, it’s important to maintain longstanding bonds, as well as form new relationships in a new locale.

A call away

Not everyone has the good fortune of aging alongside their loved ones; some seniors cannot rely on their partners or their adult children to provide a safety net or intuition-check for financial decisions. Rest assured, you’re not alone. Consider hotlines run by AARP and FINRA12; local community organizations, also, often have resources for connecting socially and sharing information.


Traditionally, detection focuses on “red flags” of fraud. It’s also useful to consider the human beings who are the ones who can actually help detect fraud in your network. This is where a core value of human relationships becomes clear – the value of having other people looking out for you. But trust, here, is a two-way street, requiring transparency and joint accountability.

Who else (besides a parent or partner) is positioned to notice a flag for financial fraud? An adult child? A financial advisor? A close friend? What do they know? What should they know? Providing information to a trusted professional about your network – and providing those individuals with information about each other – can help those individuals work together to protect you.


One of the most important findings of the Florida State University research involved the notion of “turning points.” While those life changes that led to increased isolation often predated events of financial fraud, once a crime occurred, many victims became susceptible to repeat offenses: victims often withdrew socially, creating a vicious cycle of isolation, vulnerability, and self-doubt. Enter again the importance of trusted companions, friends, and advisors for restoring not only one’s credit score, but one’s self-confidence. In those unfortunate circumstances in which a senior has been financially exploited, a core discussion network can mean the difference between recovery – financially, psychologically, and spiritually – and increased vulnerability.

Andrew L. Porter is Director of Behavioral Finance at Merrill Lynch Wealth Management. A 2011-2012 Robert Bosch Foundation Transatlantic Leadership fellow, Andrew earned an M.A. in philosophy from the Graduate Center, City University of New York, and holds a B.A. in philosophy from the College of William & Mary in Virginia.

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