Episode 2: Aging Client Considerations

Aging client considerations continue to be a regulatory focus year after year. Learn what you should be aware of and prepared for in this episode of CCO Buzz:

Podcast Transcript: 

Hello, this is Michelle Jacko, CCO of Core Compliance and Legal Services. On this week's CCO Buzz, we are going to be focusing on the newest rules related to aging client considerations. 

As you may be aware, on February 5th, there is a new law that will be going in to effect from FINRA, and it will be applying to qualified custodians. So for those of you who are investment advisers and use Schwab, Fidelity, TD Ameritrade, or others, all of those broker-dealer custodians will need to comply with the new FINRA rules.  

Specifically, they come in two parts. Rule 4512 deals with customer account information, and  specifically will require firms to make a reasonable effort to obtain the name and contact information of a trusted contact for each client. This will apply to both new and existing accounts. And so likely, the broker-dealer custodian will be requiring you, as an investment adviser, to gather this information from your clients. 

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Why is this so important? 

As clients are aging, they may suffer from diminished capacity or otherwise a form of financial exploitation, albeit from a relative, a caretaker, etc. In these instances, the trusted contact will be communicated with to find out additional information relating to that client. 

The second rule that will be coming into effect is Rule 2165. This deals with the financial exploitation of specified adults. It would apply to any client with authority to transact business who is 65 years of age or older, and or someone who is over the age of 18 whom the firm believes has a mental or physical impairment rendering that person unable to protect his or her own interests. 

Firms may hold dispersements when financial exploitation is suspected, and be able to conduct an internal review of what led to that possible exploitation. In those instances, the firm must file a report no later than two days after a hold is placed. And the hold would be valid for 15 days unless the state regulator or agency provided an extension. 

Importantly, how that would impact you at the firm level is that you would need to develop policies and procedures for how the firm will be identifying forms of financial exploitation and how you would be communicating these instances to the custodian. In some cases, the custodian would reach out to the client with the adviser on the line to interview the trusted contact to find out additional information and to take further action as warranted. 

Aging clients will continue to have additional regulatory requirements.

Some of you may have requirements based on your home state regulation. In fact, NASAA provided a model rule to protect vulnerable adults from financial exploitation, which went into effect January 22nd, 2016. 

Under the Model Act, NASAA provided key considerations for states to consider as its adopting legislation to protect aging clients. This would include mandatory reporting on adult protective services and state regulators if you believe there is financial exploitation. It also authorizes notifications to third parties for trusted contacts as designated by the client previously. 

Similar to the FINRA rule, it would allow delay of dispersements for up to 15 business days, with certain conditions imposed. It is important for investment to know if their particular state for which their client is based has enacted these types of protections so that they can prepare and train their staff who is servicing these aging clients accordingly.  

For more information about regulatory considerations for servicing your aging clients, please contact us at Core Compliance℠ at 619.278.0020, or email us at info@corecls.com