Monday, June 19, 2017

NASAA report scrutinizes senior practices and procedures

By John M. Jascob, J.D., LL.M.

NASAA has released a report surveying the senior­-related practices and procedures of more than 60 U.S. broker­dealers. The study examines supervisory procedures, training, the reporting and resolution of senior issues, and the use of trusted contact forms. NASAA released the report in recognition of World Elder Abuse Awareness Day on June 15.

“Being face-to-­face with clients puts financial services professionals on the frontlines when it comes to stopping suspected cases of senior financial fraud and exploitation,” said NASAA President Mike Rothman in a news release. “As the U.S. population ages, the financial industry can help detect and report financial crime and abuse of the elderly and other vulnerable adults.”

The Investment Products & Services Project Group of NASAA’s Broker-Dealer Section conducted the study, which selected the participating broker-dealers at random but tended to focus on larger firms. The Project Group found that 54 percent of the broker-dealers surveyed lacked a formal policy defining senior customers, and only 30 percent of the firms had created senior-specific policies and procedures. Ninety percent of the firms had at least some type of internal process for addressing senior issues, however, and approximately 95 percent of the broker-dealers provided some type of training on senior issues.

Senior-specific procedures. The report found that the quality and source of senior-specific procedures varied greatly among the broker-dealers. Some firms provided written supervisory procedures that addressed senior issues in great detail, while others only briefly mentioned an issue or procedure as a guideline in the firm’s training materials or an internal memorandum.

With respect to respect to escalation policies, firms typically required that representatives be sensitive to the possibility of diminished capacity or financial exploitation and that concerns be raised to a supervisory principal or other designated person or team. According to firm procedures, suspected abuse issues were escalated within the firm and reported to appropriate state agencies while the firm took appropriate action to restrict account activity or comply with court orders. Some firms provided lists of red flags and other considerations in determining whether escalation is necessary or provided resources regarding any state requirements for escalation.

Takeaways. The report concludes that state securities regulators should continue to encourage firms to adopt policies and procedures and develop internal teams or departments dedicated to issues regarding seniors and vulnerable adults. Specifically, NASAA recommends that firms consider improving their policies and procedures in several areas, including:
  • establishing clear definitions of “seniors” and “vulnerable adults”;
  • implementing heightened suitability review for seniors triggered by certain “red flags,” such as high risk products or account concentrations;
  • using a trusted contact form and other resources to assist senior investors;
  • establishing proper escalation protocols; and 
  • addressing how and when to report matters to authorities and when to delay account disbursements as a result of escalated concerns. 

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