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May 15, 2019: Arizona became the 24th state to adopt report and hold laws intended to prevent financial exploitation of senior and vulnerable adults and the ninth state to provide for a transactional hold. On May 13, 2019, Arizona amended its Adult Protective Services (APS) statute to add these provisions. Broker-dealers were previously required to immediately report exploitation of a vulnerable adult to a protective services worker, a peace officer, or to the county public fiduciary. The reporting duty did not apply to exploitation of seniors. Firms may now report suspected financial exploitation of a vulnerable adult or an individual who is 65 years old or older to adult protective services and the Securities Division of the Corporation Commission. It will be effective 90 days after the current legislative session ends.

May 8, 2019: 
Peter Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations or OCIE, announced on April 29 that the OCIE recently finished reviewing over 200 investment advisers with a significant senior client base. OCIE sought to understand whether these advisers had policies and procedures that discussed protecting senior investors. OCIE also focused on whether firms were aware of state requirements to report financial abuse and exploitation and the federal Senior Safe Act. These exams are part of the OCIE’s ongoing efforts to protect retail investors as outlined in its 2019 Examination Priorities.

May 6, 2019:
The State of Florida has the highest number of senior citizens of all states in the United States as a percentage of its population. Yet, for the second consecutive year, the Florida Senate has failed to consider, let alone pass, legislation designed to protect senior and vulnerable investors from financial exploitation.  The marked difference between the treatment of the proposed legislation in the Florida House of Representatives versus the Florida Senate is most notable.

On April 17, 2019, the Florida House of Representatives voted to pass the legislation with 117 votes in favor of the bill; no Representative voted against the bill.  In the Florida Senate, the bill made its way through the Children, Families and Elder Affairs Committee and the Banking and Insurance Committee without a single no vote.  Unfortunately, when the bill got to the Rules Committee, it stalled and was never considered by the Rules Committee.  As a result, for the second consecutive year, the Florida Senate did not have the opportunity to vote on the proposed legislation, which is modeled after FINRA Rules 2165 and 4512 and the NASAA Model Legislation to Protect Vulnerable Adults from Financial Exploitation. 

The 2020 Legislative session in Florida begins in January 2020, two months earlier than this year’s Legislative session. Plans already are underway to introduce the legislation once again in 2020.  Hopefully, as the proverb goes, “the third time’s the charm.”

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 18, 2019: On March 18, 2019, Virginia became the 22nd state to adopt report and hold laws intended to prevent financial exploitation of senior and vulnerable adults. In contrast to most other states, instead of adopting report and hold laws as part of its Securities Act, Virginia amended its Adult Protective Services (APS) statute to add the report and hold provisions. Virginia’s laws apply to a broader range of entities than those traditionally included in report and hold legislation. They cover any “employee, agent, qualified individual, or representative of a bank, trust company, savings institution, loan association, consumer finance company, credit union, investment company, investment advisor, securities firm, accounting firm, or insurance company.”

Virginia did not amend its reporting provision. Financial institution staff may continue to report suspected financial exploitation to the local department of social services.  The new hold provision applies to transactions and disbursements and the initial hold may last up to 30 business days after the request is made, unless another time period is ordered by a court. The statute does not provide for a further extension on the placement of the hold. The legislation does not track the NASAA Model Act as most other state’s legislation has, and it does not include third-party reporting provisions. It is effective as of July 1, 2019.

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.

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.

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.