Senior Safe Act

On May 23, 2019, the Securities and Exchange Commission (“SEC”), the North American Securities Administration Association (“NASAA”), and the Financial Industry Regulatory Authority (“FINRA”) issued a fact sheet designed to raise awareness among broker-dealers, investment advisers, and transfer agents of The Senior Safe Act (the “Act”). The Act was signed into law on May 24, 2018, and addresses the hurdles financial professionals encounter in reporting suspected senior financial exploitation or abuse to authorities.
The Act protects “covered financial institutions”, which includes investment advisors and their eligible employees, from liability in any civil or administrative proceeding for reporting potential exploitation of a senior citizen to a covered agency. Investment advisors and their representatives often times may be apprehensive to report instances of financial abuse or exploitation in fear of being mistaken or breaching one’s privacy. The Act does not require firms to implement policies and procedures but rather delivers the steps necessary to qualify for legal immunity under the Act.
The fact sheet provides an introduction and definition of the Act and further describes the individuals eligible for immunity under the Act. Advisors should identify individuals that have contact with senior clients as part of performing their roles with the Advisor. Examples of this may include advisors, traders, or individuals reviewing and approving client documents.
Advisors will be required to ensure training is conducted as soon as reasonably practicable for current employees, affiliated persons and associated persons. When the Advisor brings on new individuals the training should occur no later than a year from their hire date. Advisors must maintain a record of which individuals completed the training along with the content provided during the training. This record may be requested by a regulator through the course of an examination.
In order to qualify for immunity, individuals must:

1. be an employee of the firm who serves as a supervisor, in a compliance/legal function or an investment adviser representative of an investment advisor
2. undergo sufficient training that encompasses the following: (i) how to identify common red flags that may indicate the financial exploitation of a senior citizen; (ii) how to report the suspected exploitation of a senior citizen both internally and, as appropriate, to government officials or law enforcement authorities; (iii) discuss the need to protect the privacy and respect the integrity of each client; and (iv) be appropriate to the job responsibilities of the individual attending the training.

Other considerations to keep in mind:

• Individual and institutional immunity differ. An eligible employee that has completed their training and makes a disclosure to a covered agency in good faith with reasonable care would receive individual immunity pursuant to the Act. A covered financial institution also receives institutional immunity when an eligible employee makes a disclosure to a covered agency and all employees have received training to the extent necessary to qualify for immunity under the Act.
• Immunity established through the Act applies only to disclosures made by a covered institution or an employee of the institution to a “covered agency,” this would not apply to other third parties.

Additional resources are available below:
SEC Resources: SEC Seniors webpage
NASAA Resources: Serve Our Seniors website

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Protecting Vulnerable Adults from Financial Exploitation

The organization that represents the state securities agencies, North American Securities Administrators Association (NASAA), recently announced that its membership had voted to adopt a model act designed to protect vulnerable adults from financial exploitation.¹ The model act, titled “An Act to Protect Vulnerable Adults from Financial Exploitation”, is now available for states to enact as legislation or implement through regulation. In addition, two new rules have been proposed by FINRA, which are also designed to also help combat financial exploitation of vulnerable adults.² Finally, to bring more attention to this issue, the Consumer Financial Protection Bureau (CFPB) issued a report directed at financial institutions aimed at combating elder financial exploitation.

Protecting Vulnerable Adults in a Nutshell

Vulnerable adults are defined as persons over 65 years of age and those that qualify for protection under a state adult protective services statute. The protections for these individuals impact broker-dealers, investment advisor representatives, and those who serve in a supervisory, compliance, or legal capacity for broker-dealers and investment advisors. Generally, it will mean that as you are dealing with seniors and adults with disabilities, you may have additional responsibilities and a small amount of flexibility from regulators in dealing with certain situations.

Financial Exploitation

The type of financial exploitation that potentially could be stopped is the unauthorized use of the vulnerable adult’s assets, including when a power of attorney, guardianship, or conservatorship is used to make decisions harmful to the client. Both NASAA and the federal agencies have compiled evidence showing that trusted caregivers may obtain control over the vulnerable adult’s assets, then deprive them of the assets or convert the assets by exploiting the services of financial institutions including broker-dealers and investment advisors.³

Possible Changes

State securities regulators, FINRA and the CFPB may begin to incorporate regulatory changes to address this public concern. Advisors that have a reasonable belief that financial exploitation has been attempted or has occurred among their clients may be required to report it to the appropriate regulator and adult protective services agencies. Updates to state and federal rules may also allow advisors to notify any third parties designated by clients of their suspicions of financial exploitation, excepting any third party that are suspected to be the part of the financial exploitation. Finally, state rules may allow advisors to initially delay disbursements from an account of a vulnerable adult for up to 15 business days if, after review, there is suspicion that the disbursement may result in financial exploitation. The advisors may also extend the delay of disbursement for an additional 10 business days at the request of either the state securities regulator or adult protective services.

Crucially, NASAA’s model act grants immunity from administrative or civil liability for advisors when reporting to state regulators and agencies, notifying appropriate third parties, and delaying disbursements based on reasonable suspicions of financial exploitation while acting in good faith. However, the advisor will be required to provide records, including historical records, relevant to the suspected financial exploitation to the state’s adult protective services or law enforcement. As with all things compliance your books and records are very important.

CCO Best Practices

To prepare for dealing with vulnerable adults at your firm AdvisorAssist recommends the best practices of:

• Train staff to prevent, detect, and respond to elder financial abuse by escalating any suspicious activity to the CCO.
• Harness technology such as suspicious activity monitoring technology to identify potential financial abuse.
• Collaborate with stakeholders like custodians, banks, and plan sponsors to identify potentially at-risk clients and trusted third parties acting for the client’s protection
• Document, validate and report suspicious activity to your state regulators or federal agencies.
• Offer clients the ability to have your firm notify a trusted third party when financial exploitation is suspected.
• Maintain awareness of any existing rules or changes at your state securities regulator regarding their adoption of rules regarding vulnerable adults.

^{1. See NASAA Members Adopt Model Act at: Link. ↩}

^{2. See FINRA Regulatory Notice 15-37, October 2015 at: Link. ↩}

^{3. See Testimony of Judith Shaw, NASAA President before the US Senate Special Committee on Aging at: Link. ↩}

AdvisorAssist News for RIAs is a series of articles that will help your firm understand and prepare for changes that may be occurring on the state or federal level. Our goal is to help you increase your confidence that your firm remains in compliance as well as provide some practical steps to help Chief Compliance Officers address this topic.

Contributors:

Brendan Furey
Michael Conlon

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