On August 21, 2017, the North American Securities Administrators Association (“NASAA”) released a survey on senior citizens and financial exploitation. The survey of the state securities regulators highlighted, among other things, the need for the securities regulators to take a stronger role in prevention and detection.

The survey was conducted internally among NASAA’s membership of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico, between July 24, 2017 and August 4, 2017. 36 regulators from NASAA member organizations responded. A summary of the findings is below:

  • There is greater awareness of the investment fraud or exploitation risks seniors face now than there was a year ago.
  • In the past year, there has not been a decrease in cases or complaints involving senior financial fraud or exploitation.
  • Agencies that reported an increase in cases or complaints involving senior financial fraud or exploitation have taken steps to diminish fraud, including investor education and senior outreach, adopting the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, enforcement, etc. In fact, 52% of the surveyed jurisdictions have adopted legislation/regulation based on NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation.
  • Despite adopting legislation/regulation, the majority of agencies continue to receive reports of suspected senior financial fraud or exploitation.
  • 77% of respondents have been successful in using disbursement holds to stop exploitation.
  • Most cases of senior financial fraud or exploitation go undetected until it is too late.
  • 75% of respondents believe that broker-dealers and investment advisers are not doing enough to prevent senior fraud.
  • 82% of respondents believe the “silent generation” is the most vulnerable to financial fraud.

A copy of the NASAA survey is available at: http://nasaa.cdn.s3.amazonaws.com/wp-content/uploads/2017/08/NASAA-August-2017-Pulse-Survey-Senior-Financial-Abuse.pdf

Both the SEC and FINRA have stressed the importance of protecting elderly investors from financial exploitation, and have noted that the problem is only expected to grow as our population ages. A summary of FINRA’s activities and guidance relating to senior investors may be found at the following link: http://www.finra.org/industry/senior-investors. In 2017, FINRA issued Regulatory Notice 17-11, and announced that it had received SEC approval on a rule proposal addressing the financial exploitation of seniors. The rule proposal, which becomes effective in February 2018, involves a two-step approach to protecting investors: (1) firms will be required to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account and (2) firms will be permitted to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation.[1] In addition, both FINRA and the SEC’s Office of Compliance Inspections and Examinations have identified this area as one of their examination priorities.

Our take: the survey is yet another indication that many regulators are quite keen to take steps to help root out the financial exploitation of seniors. Broker-dealers can expect a continuing regulatory focus on the steps that they are taking to prevent this form of exploitation, and potentially, additional regulatory action in the future at the state level, in addition to FINRA’s continuing attention.