Senior Investors: Protecting the Client

Today, investment advisers and broker-dealers face many challenges when providing advice to and working for senior investors. Many seniors are living with or approaching diminished capacity due to Alzheimer’s, dementia, and/or other health-related issues. Unfortunately, these health issues create vulnerability for financial exploitation from caregivers, family members, neighbors, friends, medical professionals, lawyers, clergy, bank employees, or financial service professionals.

Senior Investor Regulations

As early as 2011, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an advisory to assist with reporting situations of possible financial exploitation of elders through SARs reporting. In 2018, FINRA enacted Rule 2165 and 4512 as guidance and requirements for financial firms about senior investors. Rule 2165 provides a safe harbor (from FINRA Rules 2010, 2150, and 11870) for temporarily holding client disbursements while further research is conducted to ensure there is no client exploitation involved. Also, in 2018, FINRA enacted Rule 4512, requiring firms to make a reasonable effort to obtain the name and contact information for a trusted contact when opening or updating new accounts. Furthermore, in May 2018, the Senior Safe Act established a way of reporting the suspected fraud of senior investors. Many states are also implementing new requirements and safeguards to protect these investors.

Best Practices for Working with Senior Investors

Addressing the needs of senior investors, along with the additional regulatory requirements to protect them, firms should review their current policies and procedures and, if necessary, create new policies and procedures specific to serving senior clients. A suggested policy for firms to consider is to establish a trusted contact person and create internal guidelines for when it is appropriate to reach out to this person. The trusted contact may or may not be a family member. Firms should also consider educating senior investors on the need for establishing a trusted contact and a Durable Power of Attorney (“DPOA”) in the event that they become incapacitated or incapable of making decisions.

It may also be prudent to educate senior investors on various types of scams that are targeting senior investors or clients in general, especially online and telephone scams. Now more than ever, it is important to monitor the senior investor’s accounts and activity, document all client meetings and discussions, and encourage senior investors to review any reports or information provided to them. Consider educating employees, especially investment advisers, regarding any red flags and changes in behavior exhibited by senior investors or other family members.

If firms outline various situations that may arise in dealing with senior investors and address how those situations should be handled, it will prepare employees if specific issues arise. Due to possible memory loss, patience and additional reminders may be necessary regarding conversations about allocation changes, money movement requests, or any other financial issue. Encourage senior clients to ask for explanations or assistance to better understand the information provided.

Conclusion

Anticipating the needs of senior clients and the possible issues around communication and oversight of their accounts and money movements will serve as a valuable resource and comfort to the client and their family. Protecting the client and building a trusted relationship with the client, the trusted contact, and the family should be the focus of any advisory or brokerage firm.

For more information, review FINRA’s rules and guidance on protecting senior investors.

Visit our previous blog post on The Senior Safe Act to dive deeper into the topic.

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