How the financial institution system impacts elderly Australians
According to the Federal Treasury, the number of Australians who are 65 and over is expected to increase rapidly, from around 2.5 million in 2002 to 6.2 million in 2042. In percentage terms, from 13% of the population to 25% of the population (Australian Treasury, 2004).
It is widely accepted that as one ages, the physical and cognitive functions diminish overtime. It is no surprise then that the need for assistance with ageing increases the dependence on third parties. Such dependence is not limited to physical assistance with core daily activities, but the carer or a third party (such as an advocate body) may be engaged in making representations to organisations on behalf of the person with a disability regardless of their age.
Disability by its very definition is the lack of ability to perform tasks one is expected to perform. The current financial system and the complex manner in which it engages with people (particularly the elderly) creates a feeling of inability to manage one’s personal affairs and teaches the reliance on others.
Financial institutions play a direct and fundamental role in people’s lives and yet they owe no fiduciary duty to act in the best interests of the customer. There appears no guidelines, requirement or desire to simplify the financial affairs of people who may be at risk of cognitive decline and in fact their revenue and customer loyalty depends (at least partially) on the number of accounts one has with the bank.
To address the complex nature of dealing with financial institutions such as banks the banking industry created a voluntary Code of Banking Practice. When a bank signs up for this code, it is legally enforceable. Within this Code, the only reference to how to treat elderly clients, or clients with special needs goes on to say “We recognise the needs of older persons and customers with a disability to have access to transaction services, so we will take reasonable measures to enhance their access to those services” (Australian Bankers Association Inc., 2013).
Financial institutions often engage in direct marketing such as telephone marketing sales. In a report published by the Australian Securities and Investment Com-mission, there was significant concern expressed with the predatory behaviour financial institutions marketed their products.
In 2009-2011, ASIC engaged in a review that investigated the practices of 15 authorised deposit-taking institutions. It was found that Consumer Credit Insurance was sold to people that were not actively seeking this cover. It also found that customers were sold such products without their knowledge or consent. More alarmingly, “pressure tactics and harassment was being used to induce customers to purchase CCI products” (ASIC, 2011). There are other serious issues, such as misrepresentation, force selling and other illegal tactics that were found to be used.
So what does this mean for people with disabilities/ impairments, and particularly those who are ageing and at risk of being vulnerable due to cognitive impairment?
In a recent case brought by the collapse of the financial planning company Storm Financial, action was taken by ASIC against four banks including Commonwealth Bank, Bank of Queensland and Macquarie Group for lending customers money to invest in a the stock market (margin loans channel) and often used the share brokering services of the bank (another channel).
It turns out many of those customers were elderly. The CBA agreed to settle the case brought against it and compensated their clients 55% of the loss. The main reason is that “many of the investors are elderly. The long delay increases the likelihood that Storm’s elderly investors will die before victory is declared” (Barry, 2011).
Another recent example is a senior financial planner employed by the CBA who was found to have fraudulently and wrongfully invested people’s retirement funds in high growth investments as opposed to conservative investments in line with their risk tolerance.
A report published by the Australian Institute of Criminology found that elderly Australians are less than half as likely as younger people to fall victims to consumer fraud, irrespective of gender. However, when examining the types of fraud experienced by the victims, there is clear evidence that elderly people are at double the risk of fraud when it comes to financial matters.
When it comes to financial fraud, elderly people are at a significant risk of being defrauded, much higher than the rest of the population. When a person can no longer “control” their finances, this helplessness puts them in situations where they risk being defrauded (by people, institutions or systems) and ultimately marginalised.
Should financial institutions around the world consider the challenges faced by an ageing population when dealing with this complex but unavoidable system? Do banks and other institutions have a responsibility to re-evaluate their current practices to help people feel included and in charge of their financial affairs?
What do you think?
ASIC. (2011). Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions. Canberra: Australian Investment and Securities Commission.
Australian Bankers Association Inc. (2013). Code of Banking Practice. Australian Bankers Association Inc.
Australian Treasury. (2004). Australia’s Demographic Challenges. Canberra: The Australian Government. The Treasury.
Barry, P. (2011). In The Eye of The Storm. The Monthly.