As adults ages 65 years and up have become the fastest growing demographics in America, they now make up the majority population of American investors. Due to the nature and vulnerability of seniors, there is renewed interest for Financial Professionals to be weary of senior exploitation; specifically, to know how to identify and report it successfully.
It’s important to note, financial abuse, or “exploitation”, is one of many forms of abuse, not limited to physical, mental, and sexual abuse, with each form having its own set of warning signs financial professionals need to look out for. To better identify financial abuse, below is a list of “Red Flags” provided by the Department of Justice, available for review on their website.
- Uncharacteristic and repeated cash withdrawals or wire transfers
- New “best friends” accompanying an older person to appointments
- Uncharacteristic nervousness or anxiety when visiting the office or conducting telephonic transactions
- Lacking knowledge about his, her, or their financial status
- Sudden changes to financial documents such as powers of attorney, account beneficiaries, wills, or trusts
- Having difficulty speaking directly with the client or customer without interference from others
- Unexplained or unusual excitement about an unexplained or “too good to be true” windfall; reluctance to discuss
- Frequent password reset requests or new online account access requests
To protect these vulnerable investors, and ensure advisors fulfill their fiduciary duties, it’s important to be aware and knowledgeable of these warning signs. For this reason, the Senior Safe Act became federal law in May of 2018, allowing firms the chance to strengthen their compliance efforts, as well as protect their largest clientele.
Under The Senior Safe Act, Covered Financial Institutions and their employees are granted immunity in legal proceedings where certain employees made a report about possible senior financial abuse. Covered entities include the following: depository institutions (banks and credit unions), investment advisers, broker-dealers; insurance companies and agencies as well as transfer agents. Two conditions are mandated:
- Certain individuals must be trained on how to identify/report fraudulent or exploitative activities against this vulnerable group, and
- Any reports made concerning possible exploitation must be made in “good faith” and “with reasonable care”.
To qualify for immunity, these two conditions must follow certain guidelines specified within the act. The first condition is training on how to identify and report exploitative activity. Training is deemed appropriate only when it is a) provided by a bank or a 3rd party service provider, b) when it is given to a qualified person within one year of employment, c) when all training records or material is maintained, d) and when the material itself includes common signs of exploitation, explains how to identify and report suspected exploitation, and discusses the importance of protecting the client’s privacy and integrity.
The second condition is that reports of suspected exploitation are made “in good faith” and with “reasonable care”. Reports are only acceptable when made by a certain qualified individual and submitted to a qualified or “covered” agency. Detailed by the SEC, this would include:
- A Law enforcement agency
- A state or local agency responsible for administering protective services laws
- A state financial regulatory agency
- The federal regulators serving on the FFIC
- The SEC, FINRA, or any other securities registered under the Securities Exchange Act of 1934.
Reporting financial abuse and having training programs is not required, although it is highly encouraged. Why?
According to Theodore Sawicki and Melissa Gworek’s piece on Endangered Investor Populations, two Compliance experts at Alston & Bird LLP, the provided immunity “enables compliance professionals to effectively protect their firms, as well as senior investors and other special classes of customers, from illicit schemes and inappropriate and unlawful sales practices, and to meet the expectations of the relevant regulatory authorities” (Lui et al. 649). Conditioning immunity on these criteria for training and reporting allows financial professionals the opportunity to become educated on exploitation, aiding the goal of limiting or possibly eradicating, senior financial abuse.
To identify and appropriately report senior financial exploitation, refer to this act and the relevant sources at the end of this blog to understand further the requirements you or your firm must meet to strengthen your compliance position.
The team at Core Compliance & Legal Services, In. SM (“Core Compliance”) can assist with not only assessing your firm’s protocols to develop a Senior Safeguard training plan for you and/or your firm, but also provide any answers to any questions regarding potential senior exploitation and associated compliance matters. For more information or assistance, please contact us here or at (619) 278. 0020.