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.
The bill also calls for the Government Accountability Office to study and report on the economic costs of the financial exploitation of senior citizens within one year of the bill's enactment.
The legislation has a sunset clause that will terminate the task force after 10 years. InvestmentNews
June 6, 2018: On June 1, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued a No-Action Letter permitting a mutual fund and the fund’s SEC-registered transfer agent to temporarily delay the disbursement of redemption proceeds from the mutual fund account of a vulnerable or senior investor (a “Specified Adult”) when financial exploitation is suspected. The No-Action Letter addressed a gap in the regulatory framework for mutual funds that was created after FINRA Rule 2165 became effective in February 2018.
Mutual fund shareholders can own shares through a broker-dealer account or directly through the mutual fund. These “direct-at-fund” accounts are serviced by the fund’s transfer agent. The transfer agent is the point of contact with the shareholder and is in the best position to detect financial exploitation.
Prior to the No-Action Letter, a fund’s transfer agent could not delay a disbursement in a direct-at-fund account when it suspected financial exploitation of a Specified Adult. Section 22(e) of the Investment Company Act of 1940 prohibits a mutual fund from delaying the disbursements of redemption proceeds for more than seven days.
In contrast, FINRA Rule 2165 permits a FINRA member broker-dealer that distributes mutual fund shares to place a temporary hold on the disbursement of funds or securities from the Specified Adult’s account if it has a reasonable belief that financial exploitation of a Specified Adult has occurred, is occurring, has been attempted, or will be attempted, and certain other conditions are met. The disbursement may be held for up to fifteen days, unless the time is extended, as provided for in FINRA Rule 2165(b)(3).
The Investment Company Institute’s Request for No-Action Relief assured the SEC that transfer agents would comply with conditions that correspond to the conditions imposed on FINRA members by FINRA Rule 2165. Based upon those representations, the SEC’s Division of Investment Management letter stated that a transfer agent, acting on behalf of the mutual fund, may temporarily delay the disbursement of redemption proceeds from a direct-at-fund account for more than seven days based on a reasonable belief of financial exploitation.
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 20, 2018: Continuing its efforts to protect senior investors, FINRA recently released an Investor Education article in its Alert Investor Newsletter describing two rules it adopted earlier this year. These rules were designed to create a national, uniform standard establishing actions financial advisors can take to protect their vulnerable clients from exploitation.
The first of these two rules, FINRA Rule 4512, requires a broker to make reasonable efforts to obtain the name and contact information from a client for a designated trusted contact person. This name can be obtained during the account opening process or when updating existing account information. The person identified as the trusted contact is intended to be someone who the firm can contact in order to discuss issues relating to potential exploitation as well as the investor’s account administration, health status, and contact information. The firm can also inquire as to the identity of any guardian, executor, trustee, or holder of a power of attorney who may have authority over the account. While a client is not required to provide a trusted contact, FINRA recommends it.
The second rule applies to accounts belonging to investors age 65 or older or to those who have a physical or mental impairment that the firm reasonably believes makes it difficult for them to protect their own financial interests. FINRA Rule 2165 allows a firm to place a hold of 15 business days on disbursements from a vulnerable client’s account when the firm believes that financial exploitation may be occurring. During the hold, the firm must conduct an investigation and reach out to the client and the client’s trusted contact. If the firm obtains information suggesting that financial exploitation is occurring, the firm may continue the hold for another 10 business days. Thereafter, depending upon the investigation, the firm may refer the matter to the appropriate law enforcement agency or adult protective services. The disbursement holds authorized by this rule are not permitted if financial exploitation is not suspected.
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.
The next step in the process involves the Florida Senate considering the legislation. Passage by the Florida House of Representatives is a major step forward to allow Florida to join the ranks of those states who provide such protection for senior investors. Please check this site frequently as Bressler will update information relating to this legislation as it makes its way through the Florida Senate.
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 26, 2018: The Financial Industry Regulatory Authority's new ruling, which comes into effect next month, that financial professionals must try to identify a trusted contact for elderly investors may prompt some difficult conversations, said Amy Daniels of Edward Jones. "We have to be real careful with that, especially with seniors, because it's a touchy subject," she said. InvestmentNews.
January 18, 2018: Thirteen states have adopted the North American Securities Administrators Association's model legislation requiring professionals to act if they suspect elder financial abuse. About 10 states are likely to follow this year, said NASAA President Joseph Borg. InvestmentNews.
January 16, 2018: Bressler Forms Senior Issues Group to Address Baby Boomer Financial Issues
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 17, 2017: A Seventh Circuit panel on Tuesday refused to overturn a sentencing order against a California man convicted of defrauding investors — including Illinois residents — of nearly $1 million in a retirement savings scheme between 2009 and 2012. Law360.
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.