April 2, 2019: On April 2, 2019, Maine became the 23rd state to adopt report and hold laws intended to prevent financial exploitation of senior and vulnerable adults. The legislation, which is based on the NASAA Model Act, applies to broker-dealers and state-registered investment advisers and is effective as of July 1, 2019.
The bill’s hold provision is similar to FINRA Rule 2165 and is limited to disbursement requests made under circumstances where financial exploitation is suspected in the account of a senior or vulnerable adult. Other provisions include mandatory reporting of financial exploitation to the Department of Health and Human Services and the Securities Administrator and permissive reporting to third parties previously designated by the customer.
March 13, 2019: Currently filed with the Florida House of Representatives and the Florida Senate are bills that relate to the protection of senior and vulnerable investors. You may view House Bill 143, filed on January 2, 2019 here, and Senate Bill 146, filed on February 27, 2019 here. Although they are similar, the bills are not identical. The differences between the two bills are discussed below.
One proposed change is more form than substance. Chapter 415 of the Florida Statutes is entitled, “Adult Protectives Services;” Section 415.1034 is entitled, “Mandatory Reporting of Abuse, Neglect, or Exploitation of Vulnerable Adults; Mandatory Reports of Death.” Florida is a mandatory reporting state. Any person “who knows, or has reasonable cause to suspect, that a vulnerable adult has been or is being abused, neglected, or exploited shall immediately report such knowledge or suspicion to the central abuse hotline.” §415.1034(1)(a), Fla. Stat. (2018). At present, Section 415.1034(1)(a) includes a list of persons required to report, such as bank employees, health and mental health professionals, and physicians, although, as mentioned previously, mandatory reporting is required by every person, i.e., by all persons including those persons who are not identified in the statute.
Both bills would amend Section 415.1304(1)(a) to add “[securities] dealer, investment adviser, or associated person under chapter 517” as persons or entities specifically identified as subject to the mandatory reporting provision found in Section 415.1034(1)(a). Adding securities dealers, investment advisers and associated persons registered under Chapter 517 of the Florida Statutes does not change the mandatory reporting requirement, which already exists. It simply adds securities dealers, investment advisers, and associated persons to the list of persons identified in the statute.
Chapter 517 of the Florida Statutes is known as the “Florida Securities and Investor Protection Act.” §517.011, Fla. Stat. (2018). Both bills will amend Chapter 517 by creating Section 517.34, which is entitled, “Protection of Specified Adults.” Proposed Section 517.34 is similar to FINRA Rule 2165 (“Financial Exploitation of Specified Adults”), although a significant difference exists.
Section 517.34 will extend to transactions as well as disbursements from accounts. FINRA Rule 2165 concerns only “a disbursement of funds or securities” from the account of a “Specified Adult.” Thus, the proposed Florida law will allow a securities dealer, investment advisor or associated person to delay a transaction, which could include a purchase or sale of an investment, if the securities dealer, investment advisor or associated person “reasonably believes that exploitation of the specified adult has occurred, is occurring, has been attempted, or will be attempted in connection with the transaction or disbursement.” A specified adult is defined as “a natural person 65 years of age or older, or a vulnerable adult defined in s. 415.102.” Under Section 415.102 (28), a “vulnerable adult” is defined as “a person 18 years of age or older whose ability to perform the normal activities of daily living or to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.” §415.102(28), Fla. Stat. (2018).
Like FINRA Rule 2165, proposed Section 517.34 will allow a securities dealer or investment adviser to place a 15 business day delay on a transaction or disbursement, with the ability to extend the delay for up to an additional 10 business days if the securities dealer or investment adviser, based on its review of available facts and circumstances, continues to have a good faith belief that exploitation of a financial adult “has occurred, is occurring, has been attempted or will be attempted.” The new law also will allow a court of competent jurisdiction to extend or shorten any delay.
Section 517.34 will require written notice to individuals who have authority in regard to the account, including a trusted contact, unless those individuals or the trusted contact are the persons who are suspected of the financial exploitation. The notice, which may be provided electronically, must set forth the reason for the hold. Notice is required within three business days under the proposed Florida statute, while FINRA Rule 2165(b)(1)(B) requires notice within two business days. Oral or written notice is allowed under FINRA Rule 2165(b)(1)(B), which also requires specification of the reason for the hold.
Both versions of Section 517.34 require the securities dealer or investment adviser to report the fact of the delay to the Florida Office of Financial Regulation (OFR), although the two versions of the bill differ in regard to the reporting requirement. Under the House Bill, a securities dealer or investment adviser must provide detailed information quarterly, including the name and address of the branch office involved in the delay, a general description for the reason for the delay, the length of the delay, and whether the disbursement or transaction ultimately was executed. OFR is required to submit a summary of the delay information that it receives annually to the Governor, President of the Florida Senate and Speaker of the Florida House. The Senate version only requires written or oral notice to the OFR, including the reason for the hold, within three business days.
The House version of Section 517.34 has very comprehensive requirements regarding the type of training that securities dealers and investment advisers must provide to their registered employees, including frequency of training and components of the training given to registered persons. The plain language of the House bill requires the development of training policies and programs, implementation of a reporting system to alert supervisory personnel, and actual training as a condition precedent to placing a delay on a transaction or disbursement. The House version mandates an hour of training for all associated persons initially and every two years after the initial training. The Senate version generally has the same requirements except for the frequency of training or the topics that any training must cover.
One other significant difference between the two versions of Section 517.34 relates to immunity. In the House version, immunity from civil and administrative liability exists based upon the presumption that the person placing the hold acted with a reasonable belief of exploitation, which may be overcome only upon a showing of clear and convincing evidence. The Senate version provides for immunity from civil and administrative liability based upon the same presumption, but allows that immunity to be overcome by a preponderance of the evidence showing “lack of reasonable belief” of exploitation. Both versions of the bill specify that they will take effect on July 1, 2019.
Both bills must go through committee hearings before they make their way to the respective floors of the Florida House of Representatives and Florida Senate for vote. Last year’s version of the bill, which was virtually identical to the version of the bill introduced in the Florida House of Representatives this year, was passed by the Florida House of Representatives by a vote of 112 in favor and only three against. The same version of the bill sailed through three committees of the Florida Senate without a single “no” vote. The bill did not make its way to the Florida Senate for vote before the end of the 2018 legislative session.
We will keep you advised regarding developments as they occur, including committee action by both the Florida House of Representatives and Florida Senate regarding the bills. The Florida Senate version is referred to the (i) Children, Families and Elder Affairs Committee, (ii) Banking and Insurance Committee, and (iii) Rules Committee. The Florida House of Representatives version is referred to the (i) Insurance & Banking Subcommittee, (ii) Government Operations & Technology Appropriations Subcommittee, and (iii) Commerce Committee. The 2019 Florida Legislative session, which began on Tuesday, March 5, 2019, will conclude on Friday, May 3, 2019.
*Alex J. Sabo is a Principal in Bressler’s Miami office. He is a member of the firm’s Senior and Vulnerable Investor Group. He is a member of the Elder Law Section of The Florida Bar and that section’s Abuse, Neglect and Exploitation Committee. Mr. Sabo frequently lectures on senior issues. He is the immediate past president of the Florida Securities Dealers Association, Inc., one of the country's oldest, largest and most respected state securities associations
February 25, 2019: On February 25, 2019, the “Safeguarding Against Financial Exploitation Act” was introduced in the New Jersey State Assembly by Assemblyman John Mckeon. The legislation largely tracks NASAA’s Model Act which grants financial services firms immunity for making required reports of suspected financial exploitation and placing a permissive, temporary hold on disbursements if financial exploitation is suspected. New Jersey’s Act provides for mandatory reporting of suspected financial exploitation to the Bureau of Securities and applicable county adult protective services. The draft bill also permits a disbursement hold when financial exploitation of a senior or vulnerable adult is suspected. Finally, it allows third-party reporting to an individual “previously designated” by the customer.
New Jersey joins Arizona, California, New Hampshire, Maine and Virginia as states where “Report and Hold” legislation has been introduced in 2019. Florida is expected to follow when the regular session of the Florida Legislature resumes on March 5, 2019.
February 1, 2019: On January 21 and 22, 2019, a legislative delegation from the Florida Securities Dealers Association, one of the country's oldest, largest and most respected state securities associations, met with Florida legislators, staff attorneys from the Florida Cabinet, and state securities regulators to discuss vulnerable adults legislation.
In 2018, the Florida House of Representatives passed a vulnerable adults protection bill by a vote of 112-3. The same bill sailed through three committees of the Florida Senate without a single no vote. Unfortunately, the bill died during the last week of session in the Senate when it never made its way to the Florida Senate floor for a vote. The Florida Legislature will consider the legislation again during the 2019 legislative session, which runs from March 5, 2019, through May 3, 2019.
If passed by the Florida House of Representatives and Senate, and signed into law by Florida’s Governor in 2019, the legislation will become part of the Florida Securities and Investor Protection Act found in Chapter 517 of the Florida Statutes. The proposed law is similar to FINRA Rule 2165 and the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation. However, Florida’s version differs in that it extends to transactions in an account, as well as to distributions from an account.
October 29, 2018: The law firm of Bressler, Amery & Ross, P.C. today introduced an interactive, web-based 50 state survey of senior and vulnerable investor laws.
This tool provides a solution for financial services firms and their legal, compliance and supervisory personnel with questions about the mosaic of state laws governing (1) who may and who must report suspected or actual financial exploitation of seniors and vulnerable clients, (2) whether a temporary “hold” of suspicious disbursements and/or transactions is permitted, and if so, for how long, and (3) which states require training programs regarding financial exploitation issues.
The survey provides a summary of each state’s financial exploitation statute and includes links to key state agencies and to required forms where applicable. Bressler actively monitors legislative developments in this space and continuously updates the survey to reflect changes in the law.
The industry tool was unveiled by Bressler at the 2018 National Society of Compliance Professionals national conference in Atlanta, Georgia. The survey may be accessed at https://www.bressler.com/senior-map.
“There are more than 20 states with new financial exploitation statutes, and other states have laws that are about to be enacted,” said Richard Szuch, who manages Bressler’s Senior and Vulnerable Investor Group. “We found that most of our clients are familiar with FINRA’s new rules on senior investors but often face challenges keeping abreast of their state law duties related to financial exploitation.” He added, “Investment advisers, too, are subject to many of these state laws. We created this tool for our clients and for any professional working in the industry who needs a quick reference to these state laws.”
For years, states have had adult protective services statutes. To combat the wave of aging baby boomers and related increases in financial exploitation, a growing number of states have expanded their laws to include “Report & Hold” legislation geared towards investment advisors and broker-dealers. Yet, these laws are not uniform—particularly with regard to reporting obligations or the types of restrictions firms can place on accounts of suspected victims of exploitation or abuse. Until Bressler’s survey, there was no current repository for the information needed to navigate the labyrinth of state laws.
Bressler’s Senior and Vulnerable Investor Issues Group designs end-to-end programs to help investment advisers and broker-dealers prevent and detect the potential exploitation of senior and vulnerable investors and to reduce their regulatory and litigation risk. The group includes 30 attorneys from Bressler’s securities, insurance, and tax and estate planning and administration practice areas and work out of Bressler’s offices in New Jersey, New York, Florida, and Alabama.
October 12, 2018: NASAA’s 2018 Enforcement Report, published October 10, shows that seniors remain a primary target for fraud. NASAA jurisdictions reported bringing enforcement actions involving over 1,100 senior victims in 2017.
States that have adopted financial exploitation statutes received more than 500 reports of senior financial abuse. For example, the Texas State Securities Board has received more than 100 reports of financial exploitation pursuant to its version of the NASAA Model Act. Texas responded by opening 24 investigations. Christopher Gerold, Bureau Chief for the New Jersey Bureau of Securities and NASAA’s Enforcement Section Chair, authored the report which is based on data from 2017. The numbers quoted in the report are certain to rise year to year as a result of the burgeoning population of investors aged 65 and older.
October 3, 2018: On August 29, 2018, Delaware passed legislation intended to prevent exploitation of senior and vulnerable adults based on the NASAA Model Act. The laws are effective as of November 27, 2018 and apply to broker-dealers and state-registered investment advisers.
Delaware’s current adult protective services statute, adopted prior to the NASAA Model Act, includes senior investor protections. It permits broker-dealers, SEC-registered investment advisers and state-registered investment advisers to place an initial hold on a transaction for up to ten business days following the firm’s filing of a report alleging financial exploitation with the Department of Health and Social Services. This statute will no longer apply to financial advisory firms, but will continue to apply to depository institutions, federal or state credit unions and institution-affiliated parties.
The new financial exploitation laws permit broker-dealers and state-registered investment advisers to delay a disbursement for up to ten business days if the firm suspects financial exploitation and certain conditions are met. Other new provisions include mandatory reporting of the financial exploitation to the Investor Protection Director and permissive reporting to certain third parties.
August 2, 2018: Advisor awareness of client's capacity can protect from financial exploitation. In efforts to safeguard vulnerable people against financial exploitation, assessing their capacity to understand financial concepts is a key requirement, writes Angela Ghesquiere of the Brookdale Center for Healthy Aging at Hunter College. In a guest blog post for SIFMA, Ghesquiere explores the challenges and developments in making those assessments and concludes there is more work to be done, particularly in standardizing definitions. SIFMA
July 30, 2018: On July 24, 2018, Alaska passed legislation intended to prevent exploitation of senior and vulnerable adults. The laws, which are based on the NASAA Model Act apply to broker-dealers and investment advisers.
These laws permit broker dealers and investment advisers to place an initial hold on a requested disbursement of up to 15 days under circumstances where financial exploitation is suspected in the account of a senior or vulnerable adult. Other provisions include mandatory reporting of the financial exploitation to adult protective services and the Commissioner of Commerce, Community, and Economic Development and permissive reporting to certain third parties.
July 12, 2018: House Panel Passes Bill to Help Ease SEC Rules on Small Firms. The Panel also passed a bill requiring SEC to set up a senior investor task force. ThinkAdvisor
July 11, 2018: The House Financial Services Committee will vote Wednesday on a bill to establish an interdivisional task force at the Securities and Exchange Commission to protect senior investors.
Introduced by Rep. Josh Gottheimer, D-N.J., the National Senior Investor Initiative Act of 2018 would create a team of staff members from the SEC's Division of Enforcement; Office of Compliance, Inspections and Examinations; and Office of Investor Education and Advocacy to examine the challenges facing elderly investors. In particular, the task force will focus on problems seniors have with financial services providers and investment products.
The task force would work with law enforcement authorities, federal agencies, other SEC offices and state regulators, and report its findings every two years to the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee. The goal would be to recommend specific regulatory or statutory changes that would benefit senior investors.
June 5, 2018: On May 19, 2018, Minnesota passed legislation intended to prevent the financial exploitation of senior and vulnerable adults. The laws, which are based on the NASAA Model Act, are effective as of August 1, 2018 and apply to broker-dealers and investment advisors.
These new regulations require broker-dealers and investment advisors to place a hold on a disbursement or transaction where a governmental agency notifies the firm of their reasonable belief that financial exploitation may result. The legislation also permits firms to place an initial hold of up to 15 days on a disbursement or transaction under limited circumstances in which financial exploitation is suspected. Other provisions include permissive reporting of the financial exploitation to Minnesota’s Commissioner of Commerce and the Adult Abuse Reporting Center as well as to some third parties.
May 24, 2018: President Donald Trump has signed a bill that protects financial professionals who report financial exploitation and abuse of seniors. The measure, which also provides for training, is part of a bill to revise the Dodd-Frank Act. ThinkAdvisor
May 9, 2018: The Securities and Exchange Commission’s Office of Investor Education and Advocacy has issued an Investor Bulletin entitled FINRA’s New Account Protection Rule – Trusted Contacts. The purpose of the Bulletin is to educate investors of the protections intended by FINRA Rule 4512. A copy of the Bulletin can be found here.
FINRA Rule 4512, which went into effect on February 5, 2018, requires brokerage firms to ask their retail customers to provide the name and contact information of a “trusted contact person” who the Firm is authorized to contact in the event of possible financial exploitation or fraud.
The Bulletin informs investors of what a “trusted contact person” is, advises why an investor would want to add one to their account, gives example of when the firm would contact a client’s “trusted contact person” and explains how to add one to a brokerage account. The Bulletin also makes clear that “a brokerage firm only has to ask retail customers for a trusted person’s contact information” but that such information is not required to open a new account.
Interestingly, the Bulletin does not mention FINRA Rule 2165, which went into effect at the same time as Rule 4512, and permits firms to place a temporary hold on disbursements from a vulnerable client’s account when the firm believes that financial exploitation may be occurring.
May 9, 2018: Wells Fargo just released its Elder Needs Survey which may explain why senior investors are so susceptible to financial exploitation -- seniors simply see no sense of urgency about the topic or they have a hard time speaking about it with their loved ones. The survey also found that, when seniors do consider the risk of exploitation, they are more worried about fraud committed by strangers as opposed to family members and close trusted persons. Both findings spell trouble for efforts by regulators and financial services firms, who share the goal of minimizing the exploitation of seniors and vulnerable investors.
In a summary describing its findings, Wells Fargo stated, “Although nearly half of older Americans (48 percent) say there are family members they would not trust with their money, 68 percent say strangers are the most likely perpetrator of financial exploitation, followed by hired help (24 percent). Fewer than one in ten (9 percent) say that family members are the most likely perpetrators, despite family members being among the most common perpetrators [citing National Adult Protective Services data].”
One has to be careful about drawing broad conclusions from the survey as it was based on interviews with 784 investors, age 60 or older, with “at least $25,000” in investible assets. With an asset level that low, this group of investors may not feel the sense of urgency that others might have with more at stake.
Amended FINRA Rule 4512 now requires firms to “make reasonable efforts” to obtain the name and contact information of a “trusted contact person” (designated by the client) when opening a new account. That trusted contact acts as a resource for firms if the need arises to make contact in cases of suspected financial exploitation. New FINRA Rule 2165 permits (but does not require) firms to place a temporary hold on disbursements from client accounts when they have a reasonable belief that financial exploitation has occurred/is occurring or has been/will be attempted.
The regulators have clearly indicated their expectation that firms need to be able to move more quickly in case of suspected fraud and must put in place better controls to avert senior/vulnerable investor financial exploitation.
For the survey, please visit: https://www.wellsfargoadvisors.com/pdf/elder-protection/elder-needs_survey.pdf
For the press release, please visit: https://newsroom.wf.com/press-release/community/conversations-about-elder-needs-arent-happening-according-wells-fargo
April 24, 2018: April 20, 2018 marks the three-year anniversary of the Senior Helpline, which FINRA launched to provide senior investors a source of trustworthy information and assistance. Since 2015, the Helpline's dedicated and knowledgeable staff has taken over 13,000 calls, including over 1,000 so far in 2018 from offices across the country.
April 13, 2018: On April 10, 2018, Kentucky enacted laws intended to prevent the financial exploitation of vulnerable adults, becoming the nineteenth state to pass legislation based on the NASAA Model Act. The laws are effective as of July 13, 2018 and apply to broker-dealers, investment advisors, and financial institutions.
Prior to the new legislation, Kentucky’s Economic Security and Public Welfare laws required firms that had knowledge or reasonable cause to suspect that financial exploitation had occurred to file a report with the Cabinet for Health and Family Services (the “Cabinet”).The laws were silent on whether firms could report financial exploitation that was occurring or was suspected to occur in the future.
Under the new laws, however, firms that merely have a reasonable belief that financial exploitation is occurring, has been attempted, or will be attempted are permitted to report the suspected financial exploitation to the Cabinet, the Department of Financial Institutions, and any third party that is reasonably associated with the vulnerable adult. The legislation also permits firms to place an initial 15 day hold on disbursements and transactions. Firms are granted administrative and civil immunity for making a good faith disclosure and placing a temporary hold.
April 2, 2018: On March 16, 2018, Utah became the eighteenth state to pass legislation based on the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation. Utah extended the NASAA Model Act’s hold provision to allow a broker-dealer or investment adviser to place a 15-day hold on disbursements as well as transactionswhere the firm reasonably believes that financial exploitation may result. Other provisions include mandatory reporting of the financial exploitation to Utah’s Division of Securities and Adult Protective Services and permissive reporting to a person previously designated or reasonably associated with the vulnerable adult. The laws are effective May 7, 2018.
During the 2017-2018 legislative sessions, an additional eight jurisdictions have introduced similar legislation.
March 1, 2018: On March 1, 2018, the Florida House of Representatives, by a vote of 113-2, approved House Bill 681, which relates to protection of vulnerable adults. Among other things, the bill provides that a securities dealer or investment advisor, who has a reasonable belief that a person age 65 or older is the subject of financial exploitation, may place a temporary hold on a transaction or distribution from the senior investor’s account.
January 30, 2018: The House has approved legislation that includes the proposed Senior Safe Act, which encourages financial firms to train employees to spot and deal with financial exploitation of older investors. The act includes a provision that protects financial professionals from legal liability if they report suspected fraud and abuse to law enforcement agencies and regulators. ThinkAdvisor.
January 4, 2018: The Financial Industry Regulatory Authority has explained rules, scheduled to take effect Feb. 5, that prevent financial exploitation of seniors. One provision authorizes FINRA members to temporarily hold up disbursement of funds or securities from accounts "where there is a reasonable belief of financial exploitation of these customers." ThinkAdvisor.
October 20, 2017: President Donald Trump has signed into law a measure that gives US prosecutors broader authority to act against financial criminals who use telemarketing or email to exploit the elderly. The Elder Abuse Prevention and Prosecution Actalso allows enhanced penalties for anyone convicted of victimizing or targeting a person older than 55.
October 4, 2017: The Elder Abuse Prevention and Prosecution Act was passed by the Senate and then sent to the House for debate. The House passed the Act by voice vote. Then, the House reconsidered their legislative action. Bressler will let you know when this Act moves forward in the legislative process.