Financial Exploitation

A representative recommends a trade for an elderly customer that is unusually large relative to her typical account activity, shortly after the representative learns the customer has been recently diagnosed with a cognitive impairment. What must the principal consider?

1. A.Process the trade normally, since the representative has authorization to act on the accountWrong. Authorization does not address the vulnerability-related red flag created by the timing relative to the cognitive impairment diagnosis.
2. B.Consider whether the timing relative to the diagnosis warrants additional scrutiny and possible escalation as a potential exploitation red flagCorrect. An unusual transaction closely following discovery of potential cognitive impairment is a recognized red flag for financial exploitation of a vulnerable adult.
3. C.Take no action unless a family member specifically raises a concernWrong. The principal should proactively evaluate the red flag pattern rather than waiting for a third party to raise it.
4. D.Restrict the account entirely without any further review of the specific transactionWrong. This overreacts without the review described; the appropriate first step is scrutiny and consideration of escalation, not an unreviewed blanket restriction.

Why: A significant, unusual transaction closely following the discovery of a customer's potential cognitive impairment is a recognized red flag for possible financial exploitation of a vulnerable adult. The principal must consider whether this pattern warrants additional scrutiny and possible escalation, not simply process the trade because it was technically authorized.

A customer suddenly begins requesting frequent, small cash disbursements from her account shortly after a new individual is added as a joint account holder. What should the principal consider about this pattern?

1. A.Treat the two events separately, since adding a joint holder and requesting disbursements are both routine account activitiesWrong. This misses the pattern created by considering the two events together, which is the actual red flag.
2. B.Consider escalating the pattern for review, given the coincidence of the new joint holder and the changed disbursement behaviorCorrect. A sudden disbursement pattern change coinciding with a new joint holder addition is a recognized financial exploitation red flag.
3. C.Take no action unless the original account holder specifically requests a reviewWrong. The principal should proactively consider escalation based on the pattern itself, not wait for the customer to request review.
4. D.Approve the new joint holder addition but ignore the disbursement pattern as unrelatedWrong. Treating the two events as unrelated misses the point that their combination is what creates the red flag.

Why: A sudden change in disbursement pattern coinciding with the addition of a new joint holder is a recognized red flag for potential financial exploitation. The principal should consider escalating this pattern for review rather than treating the new joint holder addition and the disbursement pattern as unrelated, routine events.

An elderly customer, who has always personally called with questions and made her own decisions, suddenly stops contacting the representative directly. Instead, a new individual identifying herself as the customer's caregiver begins making all account inquiries and requests on the customer's behalf, and mentions that the customer "prefers not to be bothered" with calls from the firm anymore. What should the principal recognize about this pattern?

1. A.The pattern is not a concern, since caregivers commonly assist elderly customers with communications and this is a normal accommodation.Wrong. This dismisses a recognized isolation pattern as routine.
2. B.The concern is limited to verifying the caregiver's identity; once her identity is confirmed, her requests may be processed the same as the customer's own requests without further inquiry.Wrong. Identity verification of the caregiver alone does not address the isolation pattern itself.
3. C.A sudden shift where a previously independent customer becomes isolated from direct contact with the firm, with a new individual controlling communication and access, is a recognized red flag pattern for possible financial exploitation that warrants further inquiry, not routine acceptance.Correct. Sudden isolation from direct contact, with a new individual controlling access, is a recognized exploitation red flag.
4. D.The pattern only becomes a concern once the caregiver actually requests a disbursement of funds; communication changes alone are not worth noting.Wrong. The isolation and communication-control pattern itself is worth noting before any disbursement request occurs.

Why: A sudden shift where a previously independent customer becomes isolated from direct contact with the firm, with a new individual controlling communication and access, is a recognized red flag pattern for possible financial exploitation that warrants further inquiry, not routine acceptance.

A representative becomes concerned that a disbursement request from an elderly customer may be the product of financial exploitation by a new acquaintance who has recently become involved in the customer's affairs. The representative wants to simply refuse to process the disbursement indefinitely without telling anyone. What should the principal ensure happens instead?

1. A.The firm should follow its documented procedures for placing a temporary hold based on a reasonable belief of exploitation, which include internal review, notifying the customer and any trusted contact (other than a suspected bad actor), and revisiting the hold, rather than an indefinite, undocumented refusal to act by the representative alone.Correct. A documented hold-and-review process, with appropriate notice, is the expected response.
2. B.The representative should process the disbursement as requested, since a firm has no basis to delay a customer's own request for funds under any circumstances.Wrong. This ignores the recognized ability to place a documented temporary hold when exploitation is reasonably suspected.
3. C.The representative should contact law enforcement directly and freeze all activity in the account indefinitely without involving firm compliance.Wrong. This bypasses the firm's own documented internal review and notification process.
4. D.The representative may refuse the disbursement indefinitely on his own judgment without documenting the basis for the hold or notifying anyone, since discretion to protect a vulnerable customer belongs to the representative directly.Wrong. An indefinite, undocumented unilateral refusal is not the same as following the firm's documented hold-and-review process.

Why: The firm should follow its documented procedures for placing a temporary hold based on a reasonable belief of exploitation, which include internal review, notifying the customer and any trusted contact (other than a suspected bad actor), and revisiting the hold, rather than an indefinite, undocumented refusal to act by the representative alone.