Episode 15: Senior$afe Act (Part 1)

In this week's episode, we have Core Compliance's CEO Michelle Jacko diving into the complexities of the Senior Safe Act and proper protocols, to best prepare for an SEC examination. 

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Michelle Jacko: Hello, this is Michelle Jacko, CEO of Core Compliance & Legal Services.

In this week’s CCO Buzz, we will be talking in part of a two-part series on the Senior Safe Act and what are some of the considerations that Investment Advisors should be considering with regards to, what I’m going to refer to as, Senior Safe Protocols, that your firm should be considering in light of the current SEC Examination Program.

You know If you think back, one of the very first times that senior investor issues came to the forefront as a hot issue, was back in 2015 with the National Senior Initiative, which was a report that was issued by the SEC’s Office of Compliance Inspections and Examinations (OCIE), as well as FINRA; where they examine the training and supervision efforts on issues dealing with diminished capacity.

Shockingly, what that report finding illustrated was that only 13% of firms had dealt with senior issues. Today, we have numerous investor bulletins on senior issues. And if you can recall, Rick Flemming, who was the SEC’s first investor advocate, set the stage when he stated in a 2015 speech, “Advisors have a role in protecting investors.”

Ever since then, we’ve seen the protection of senior investors as an examination top priority. And right now, what the staff is looking at are what [internal] controls an investment advisor has in place to protect aging and vulnerable investors.

So what we are going to be sharing with you on the CCO Buzz are some of the actual examination questions that our firm has seen.

Interestingly, the SEC is defining a senior client as any retail client who is age 62 or older, retired, or transitioning to retirement; including accounts of deceased clients and retail clients and joint accounts with at least one individual meeting this definition.

So, I don’t know about you, but boy, age 62 doesn’t sound that senior to me anymore, but that is their threshold.  In the definition of senior client, it could also differ dependent upon the jurisdiction you reside in and I am aware of a few states that will define a senior investor as young as age 60.

Some of the examination questions that SEC is currently asking related to senior clients enclose:

  • Provide the approximate percentage of clients that are age 62 or older;
  • Indicate the approximate percentage of an adviser’s regulatory assets undermanagement that are for advisory clients age 62 or older;
  • Provide any policies and procedures designed to address issues associated with diminished capacity or competence;
  • Provide policies and procedures concerning the handling of client requests for changes to beneficiaries, including all policies and procedures concerning monitoring and supervision relating to changes of beneficiaries;
  • Provide any policies and procedures concerning powers of attorney;
  • Provide any policies or procedures that contemplate or consider establishing a trusted point of contact in the case that clients having a diminished capacity or competence issues;
  • And provide a list of any training provided by the firm to its employees that relate to senior clients and indicate the nature of training provided;

    So was it in person? Or computer-based? Or were there email alerts?
  • And then, provide a copy of any written guidance or training materials provided.

Now what I want you to think about is if you receive those questions from the staff, would you indeed be able to produce the documents to address these areas?

One of the areas you will also want to think about are you current Investment advisory agreements. Take a look at your contracts and see, whether or not, if they have disclosed to clients what would you do in the case of the client suffering from death, disability or incapacitation.

A contract has multiple purposes, but one of the most important purposes is to disclose to the clients the service expectations of what they will be receiving from the investment advisor and to ensure that it sets expectations of what would occur in the case, of in this example, a significant life event, such as death, disability or incapacitation.

Through a contract, you should think about…

  • Do we have provisions – where it would allow the advisor the ability to reach out to the client’s trusted contact in the case of the significant life event?
  • Does the contract grant the advisor the permission to reach out to adult protective services, for example, if the advisor has a reasonable belief that financial exploitation occurred?
  • Does the contract specify the withholding of disbursements upon reasonable belief of financial exploitation?

Those are just some examples of some of the provisions you may want to consider adding to your agreements to help define rules and responsibilities of the parties, particularly when the client is of sound mind.

In part two of the CCO Buzz we will then go into the new Senior$afe Act that was signed into law in May 2018 and describe for you some of the considerations that investment advisors should take for further protecting and ensuring the safety of senior clients.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn or Twitter @CoreCLS. Thank you and we hope you tune into next week’s episode of the CCO Buzz.

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