According to a State Street study, ‘The Impact of Ageing on Financial Decisions’, investors who begin experiencing cognitive decline but have no plan for financial decision-making are the most vulnerable to financial fraud.
Cognitive decline is defined across a spectrum of conditions, ranging from mild cognitive impairment to Alzheimer’s disease.
Common scams targeting seniors include health insurance fraud, investment schemes, reverse mortgage scams and internet fraud, according to the study.
State Street Global Advisors’ head of practice management, Brie Williams, suggests overconfidence among older investors is typically at the root of why financial fraud or abuse can succeed.
“As we age, our confidence is not impacted, so we may take more risk than we would have in our forties, just because we feel better about what we believe to know is true,” she said.
“Your risk behaviour may become more aggressive if you’ve been more conservative with your investing your whole life.”
The study cites Monash University research which found that 5 per cent of Australians over the age of 65 have experienced financial abuse.
Ms Williams suggests that figures concerning financial fraud may be under-reported because many investors feel it to be quite embarrassing if they find themselves to be victims.
The study also found a disconnect between advisers and investors when it came to addressing the issue of cognitive decline.
It found that while 72 per cent of advisers say they provide clients with sufficient information and support, only 27 per cent of investors are satisfied with the level of information and support provided.
The study suggests that starting the conversation early can help depersonalise it, since both the adviser and the investor can speak more objectively.
It further adds that since the conversation would be about ‘potential cognitive decline’ and is focused on the distant future, it is not a reflection of the client’s abilities so it does not come with the same stigma attached.
