Aging Client Considerations at Top of 2018 SEC Exam Priorities

The SEC has released its 2018 examination priorities, and the focus on, and protection of, aging clients, and considerations related to such clients (as a subset of retail investors generally), is a continuing theme.

aging client considerations

The focus on these investors has been a recent priority of the SEC and FINRA. The “Baby Boomer” generation has been the largest generation in the United States for decades (until very recently). Thus, regulatory agencies have been preparing for when this substantially sized generation reached retirement age and began to age out of the workforce. They’ve realized it will become more important than ever to ensure advisors take proper precautions when working with aging investors.

To put it simply, the wind is starting to shift — “Millennials” are becoming a larger block of the working population and are taking on the space that the Baby Boomers are beginning to vacate. However, Baby Boomer investors are the wealthiest in U.S. history, making them both more likely to invest and more likely to be targeted by honest and unscrupulous advisors alike.

Aging Client Considerations for Registered Investment Advisors (RIA)

As all firms are acutely aware, as an RIA, you have a fiduciary duty to your clients. Acting in a client’s best interest, however, can become a complex path to walk when one’s client is exhibiting signs of diminished capacity, dementia, Alzheimer’s, or even elder abuse.

It is critical for all advisors to get ahead of the curve on issues related to aging investors. Because of the nature of dementia and other age-related illnesses, diminished capacity will always get worse. Knowing this, it only gives advisors a narrow window in which to act when diminished capacity is noticed. In many cases, no window of time to act is left at all when an age related illness comes on suddenly.

Therefore, the SEC will be focusing examinations in 2018 related to senior investors and retirement accounts on the “internal controls at firms [that are] designed to supervise their representatives, particularly relating to sales of products and services directed at senior advisors.” Coordinating with clients while those clients are still at full capacity to make all reasonable efforts to obtain the name and contact information of a trusted contact is just one of the many steps firms need to take to ensure their clients’ best interests are put first.

The Department of Labor’s Conflicts of Interest Rule – And Recent Court Decision

Though (“DOL Rule”), many firms have nevertheless been preparing for the implementation of this rule for months (or even years).  For now, federal regulators will be backing off the rule, in light of a recent ruling by the 5th Circuit Court of Appeals ruling that the fiduciary rule was an overreach of authority. However, this relaxation of regulation isn’t necessarily permanent, as an agency spokesman noted that the entire situation was pending further review.

Regardless of how the current situation with the rule plays out, the trend toward increasing scrutiny of retirement accounts, paired with the aging Baby Boomer population, is only likely to move forward. Firms need to be at the forefront of this movement by not simply implementing only when required, but rather by proactively implementing internal policies that will protect the firm far into the future.

Simple measures, like reducing risk in retirement accounts, implementing internal policies for how to escalate in the case of diminished capacity or elder abuse, creating a “response plan” for instances of both diminished capacity and suspected elder abuse, and even training staff to recognize the signs of elder abuse, dementia, and Alzheimer’s, should be put into place now, both to keep abreast of the SEC’s examination priorities for 2018 and to stay ahead of potential changes, rules, or regulations by other regulatory agencies.

Read more about some considerations firms should take for aging clients here.

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