The Securities and Exchange Commission, North American Securities Administrators Association and the Financial Industry Regulatory Authority have collaborated on newly released training resources to help firms, affiliated brokers and advisors spot suspected instances of the financial exploitation of senior investors.
The training, “Addressing and Reporting Financial Exploitation of Senior and Vulnerable Adult Investors,” is meant as a tool for firms and financial services professionals to comply with the 2018 Senior Safe Act, which was passed to assist firms and individuals when reporting potential senior exploitation or abuse.
In many cases, complying with the act can protect “covered financial institutions” (which can include investment advisors, broker/dealers and transfer agents) from liability in any civil or administrative proceedings if they report their suspicions. While the act incentivizes reporting potential exploitation, it doesn’t mandate doing so.
According to Kristen Standifer, a licensing and examinations supervisor with the Washington State Securities Division and vice chair of NASAA’s Senior Issues Committee, the three agencies started work on the newly announced program in 2019. The new resource is slightly shorter than previous iterations and is designed to satisfy multiple state requirements, which Standifer hoped would motivate firms to get more of their employees trained.
“Firms may operate in many states, so for them to have a resource where they can give one training that satisfies the requirements of the many states, that’s an advantage, as well,” she said.
To qualify for immunity, firms and employees must receive training on identifying and reporting potential exploitation; firms may also have to provide additional “training specific to their organizations, procedures and employees’ roles,” and must also comply with other requirements included in the Senior Safe Act.
Additionally, employees would have to report suspected exploitation “in good faith and with reasonable care” to qualify, and must make the report to a covered agency, which can be a state securities or insurance regulator, adult protective services agency, the SEC or FINRA, as well as other law enforcement or federal agencies. In particular, compliance with the Senior Safe Act protects firms and professionals from the liability that could result from violating privacy laws by providing client documentation and information to regulators or law enforcement when they suspect fraud, Standifer noted.
“I hope firms find it helpful, but we’re always wanting to improve and listening to firms,” she said. “If they have additional insight, our Senior Issues Committee is open to hearing that insight.”
The training offers numerous examples of “red flags” that should raise advisors’ suspicions, including a client making “uncharacteristic and repeated” cash withdrawals or transfers, as well as suddenly appearing at meetings with family, relatives or others the advisor has never seen before. A client may be nervous or anxious when visiting an advisor in-person or speaking by phone, and it may be difficult for that advisor to reach that client without interference.
Additionally, an advisor might consider the possibility of exploitations if a client makes or demands sudden changes to important financial documents (including powers or attorneys, or wills and trusts), and should be concerned if clients make large or atypical withdrawals or account closings even if it would mean they face a financial penalty.
Financial abuse of seniors continues to be a pressing issue, with a Consumer Financial Protection Bureau 2019 analysis revealing that exploited seniors suffered an average loss of $34,200. In 2017, there were $1.7 billion in estimated losses for reports of financial exploitation of seniors, according to an AARP report on the CPFB analysis. However, the potential losses could range from $2.9 billion to as high as $36.5 billion a year, the analysis showed.
The same report found that in 36% of cases, the seniors knew the person exploiting them, and the report also indicated that losses tended to be highest when a fiduciary was responsible for the exploitation, with an average of $83,000 in losses per victim in that scenario.
NASAA President Lisa Hopkins said she hoped the resources would “promote greater and earlier detection and reporting” of potential instances of exploitation, while SEC Chair Gary Gensler urged investors to use SEC resources to make sure they’re not falling victim to exploitation. Standifer echoed Gensler’s point, saying that one of the most effective routes of stopping fraud is helping the investor avoid it altogether.
“Once they get into the fraud it can be hard to get the person out of it,” she said.
