In 2023, Americans lost over $10 billion to investment fraud and financial scams. As cyber criminals become more sophisticated, using AI and advanced technology to target wealth management clients, the threat continues to grow.
As financial advisors, protecting our clients—especially those who may be more vulnerable to fraud—is a top priority. We play a crucial role in preventing scams and cyber threats from affecting our clients.
These crimes are not only becoming more prevalent but are also notoriously difficult to prosecute, making prevention essential. By implementing structured education for your team and clients, security action plans, and continuous security monitoring, we can safeguard our clients and their assets.
Below, we outline three key strategies we use to protect vulnerable clients against fraud.
1. Implementing proactive client education
Educating clients about fraud prevention is one of the most effective ways to reduce risk. We leverage multiple channels, including email updates, newsletters, social media, security announcements, and direct conversations, to keep clients informed. As AI-driven scams and identity fraud become more prevalent, equipping clients with knowledge is essential.
Here are some recent initiatives we’ve implemented:
- Security updates: We advise our clients to update estate planning documents older than 10 years, designate a trusted contact, and implement a unique passcode for phone authentication.
- Create a Cybersecurity and Scam Guide: At Carson Wealth, we have an FP Pathfinder guide outlining 13 cybersecurity measures and common scams to ensure our clients are aware of the different scams circulating. Main fraud schemes to be aware of include cybertheft, identity theft, reputational damage and physical safety threats.
- Code phrase protocol: To enhance client communication security, we introduced a protocol aligned with industry best practices and cybersecurity experts to prevent unauthorized access.
- Durable Power of Attorney (POA) guidelines: We educate our clients on the importance of establishing a POA for accounts, ensuring financial protection in unforeseen circumstances.
Awareness is a powerful tool in recognizing and preventing fraudulent activity before it becomes a threat. Advisors should position themselves as the first point of contact when a client falls victim to a scam or even suspects they may have been.
By discussing scams before they happen, an advisor can help remove much of the stigma associated with being victimized. Keeping clients engaged in fraud prevention efforts can empower them to take an active role in their security while reinforcing our role as trusted advisors.
2. Developing comprehensive security action plans
A structured security framework is essential in protecting vulnerable clients. At Carson Wealth, we have implemented and continuously refine four key security action plans. Additionally, we ensure that our team receives regular training to stay ahead of emerging threats. Below are the key plans firms should have in place to protect their clients.
- Information security: Consider employing stringent authentication measures, including verbal verification for transfer requests, encrypted email communications and secure data storage.
- Power of Attorney (POA) oversight: Encouraging clients to maintain updated POAs is essential in preventing financial mismanagement and fraud, especially for elderly or vulnerable clients. Without an up-to-date POA, assets can be left in limbo if a client becomes incapacitated. Additionally, fraudsters often exploit outdated estate planning documents to gain unauthorized control over assets. Advisors should proactively review POAs during annual meetings and confirm that designated agents remain appropriate.
- Diminished capacity safeguard: As advisors, we have a responsibility to recognize signs of cognitive decline in clients, as this can make them more susceptible to fraud and financial exploitation. Our team undergoes regular training to identify warning signs, such as unusual withdrawal requests, confusion over account details, or sudden changes in financial behavior. By having protocols in place, we can step in to prevent potential financial abuse and work closely with family members and legal professionals to ensure client protection.
- Unique passcode verification: AI-driven scams are making voice-based fraud more sophisticated. Fraudsters can now replicate a client’s voice to authorize transactions over the phone. A unique passcode system adds an extra layer of verification, ensuring that even if a scammer gains access to a client’s voice data, they cannot bypass this security measure. At Carson Wealth, clients requesting fund transfers by phone must verify a personalized passcode known only to them, their POA, or a trusted contact.
These strategies work in tandem to help us establish trust with our clients while minimizing exposure to fraud risks. Again, the goal is to prevent fraud before it happens. By implementing robust tools and well-defined security plans, your firm will be better equipped to handle emerging threats, while also providing clients with peace of mind. As fraudsters leverage AI to develop more sophisticated tactics, reinforcing security measures reassures clients and enhances their confidence in your firm.
Strengthening client trust is not just beneficial—it is essential for long-term success.
3. Continuous monitoring and risk assessment
Monitoring client accounts and staying ahead of emerging threats are essential components of fraud prevention. One of our key initiatives, The Wallet Share Project, enhances security by analyzing tax returns to identify potential fraud risks.
- Tax return analysis: Each year, we review clients’ most recent tax returns, particularly Schedule B, to analyze a client’s interest and dividend income, which helps us identify external investment accounts. These conversations help us provide more comprehensive planning while maintaining awareness of any outside assets and identify opportunities to maximize returns and tax efficiency.
- AI and cybersecurity monitoring: We have two dedicated team members who continuously evaluate technological advancements and cyber threats. We discuss these advancements weekly which helps keep us informed of new risks and adjust our security protocols accordingly.
By actively monitoring client accounts and technological risks, we provide an additional layer of security while reinforcing our role as trusted financial stewards.
Our role in safeguarding clients
As fraud tactics evolve, so must our defenses. Think of yourself as the front-line in client fraud prevention.
Take the time to review your current fraud prevention strategies and implement these proactive measures to safeguard your clients. If your firm hasn’t yet incorporated security action plans like unique passcodes, POA oversight, or continuous fraud monitoring, now is the time to do so.
By leading the charge in fraud prevention, you can provide clients with peace of mind while setting your practice apart as a trusted advisor.