Financial professionals may be among the first to recognize when older clients start showing signs of diminished capacity as well as the “red flags of financial exploitation,” according to Rick A. Fleming.
Yet these professionals often feel limited in their ability to protect their clients, the federal official told the American Retirement Initiative Winter Summit in Washington, D.C.
Fleming is the first “investor advocate” to be appointed to the one-year-old Office of the Investor Advocate.
A part of the Security and Exchange Commission (SEC), the office is charged with helping ensure that investor interests are considered in policymaking at the SEC, self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA), the stock exchanges, and in Congress. His comments were published on the SEC website.
Fleming urged his audience to share ideas about how to help protect elders from financial exploitation and sometimes from their own “financial self-destruction.” That includes how to help advisors who work with elder clients.
“We are looking for ways to give financial service professionals more effective tools to protect clients whenever an advisor or registered representative suspects financial or other abuse of a vulnerable client,” he said.
As an example, he noted that financial professionals are expected to comply with client requests to withdraw or transfer assets. However “rigid compliance with this basic rule would prevent a financial professional from blocking transactions that appear to be exploitive or outright scams.”
“Financial professionals are also subject to privacy laws that limit their ability to contact a client’s family members to discuss their concerns,” he said.
How to deal with older age clients has become a source of uncomfortable discussion among advisors in the insurance and financial services industry.
Advisors have seen state after state adopt rules and regulations about market conduct practices involving senior clients. In insurance, some of this was at the behest of the National Association of Insurance Commissioners, which in 2003 adopted the Senior Protection in Annuity Transaction Model Act. That model set protections for senior buyers age 65 and up. (Three years later, it was revised to apply to consumers of all ages, under the name Suitability in Annuity Transactions Model Regulation.)
Insurance advisors also have watched various court decisions skewer advisors for violations having to do with seniors. The controversial Glen Neasham case, later reversed on appeal, is the most notable example, but there are others.
(In the Neasham case, the California Superior Court charged the agent with felony theft for selling one annuity to an 83-year-old woman who was later said to have dementia, the signs of which were not apparent at the time of the sale.)
It is no longer uncommon to see advisors shy away from public discussions about working with seniors. Some have told InsuranceNewsNet they do this out of uncertainty about what is permissible or what they could be accused of doing. Or, they don’t want to speak publicly without first running things by their compliance officer.
Some have curtailed their work with seniors for the same reason. Or they have added extra compliance steps to their senior sales processes, preferring to err on the side of overkill instead of making recommendations that could later be deemed abusive or unsuitable.
That cautious behavior probably provides a good layer of liability protection, as well as good care for senior clients. But that doesn’t always help advisors when confronted by an established client, now in the senior years, who displays modestly iffy cognitive behavior but insists on doing a transaction.
The trusted advisor’s role
“It is my belief that the trusted advisor has an indispensable role in protecting investors not only as they plan for retirement, but particularly as they begin to face the special challenges and dangers of diminished capacity,” said Fleming in his address.
He alluded to the growing ranks of baby boomers entering retirement, and commented on how “the greatest known risk factor” for the cognitive disease of Alzheimer’s is increasing age.
This is not a dead end, however. Fleming noted that financial industry representatives have begun seeking reforms that would help remove some impediments.
In 2010, Washington state enacted a law along these lines, he indicated. It “allows a financial institution to refuse a transaction whenever the institution reasonably believes that financial exploitation of a vulnerable adult may have occurred or is being attempted.” This includes the ability to “pause” transactions in which financial abuse is suspected.
Missouri is considering similar legislation, he said, and the North American Securities Administrators Association (NASAA) is studying a number of reforms.
State regulatory leadership on this is important, Fleming said, “because seniors turn first to their state and local governments for assistance, and the challenge of addressing elder abuse varies from state to state.”
What about adopting similar measures at the federal level? Fleming said he’s inclined to say “yes” to that. However, he acknowledged that many questions would need to be addressed — questions such as, how long should a “pause” last? How much harm could be caused by a pause? Should a firm be required to disclose reasons for a pause to the government?
The “overarching challenge” is to decide how to respect an elder’s right to self-determination while preventing his or her financial self-destruction, he concluded.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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