An investment adviser firm and its investment adviser representatives are uniquely placed to spot signs of financial exploitation that may be happening to their investment advisory clients. An investment adviser representative is often on the front lines of a client’s finances and becomes quite familiar with a client’s habits, preferences, and personal situation. This knowledge can help the investment adviser representative spot unusual patterns and suspicious requests, whether made directly by the client or by a third party.
Financial fraud and exploitation come in many forms. Common schemes include lottery and sweepstakes scams, telemarketing scams, and sweetheart scams. More intimate exploitation can occur when a family member or trusted person abuses a power of attorney, misappropriates money from a joint bank account, or steals a debit, credit, or ATM card. In some cases, such as a lottery scam or sweetheart scam, clients themselves are unaware they are being defrauded. In other, like a telemarketing scam, clients may not be aware of repeat billing charges on their account or know how to get the charges stopped.
A recent survey of securities regulators across the United States by the North American Securities Administrators Association (“NASAA”) shows that while awareness of financial exploitation of vulnerable persons is increasing, so are the number of cases reported. Most survey respondents indicated that cases of financial exploitation of elderly or vulnerable adults are generally not detected until it is too late. Click here to view the NASAA survey. As someone familiar with how a client’s finances normally look, an investment adviser representative can be one of the first people to notice when something isn’t right. As a financial professional, the investment adviser representative is also uniquely qualified to help address the problem before it grows too large.
State securities regulators are increasingly recognizing an investment adviser firm’s unique position when it comes to combating abuse and/or financial exploitation of elderly and vulnerable adults. So far, thirteen states have adopted laws or regulations based on NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. Click here to view NASAA’s website on the Model Act. While some states have only enacted voluntary reporting laws that grant an investment adviser firm with qualified immunity from civil suit if the investment adviser firm reports suspected abuse or financial exploitation within the statutory framework, other states have embraced a more stringent mandatory reporting approach.
The State of Colorado, for example, recently adopted a three part law that requires mandatory reporting of elder financial exploitation to the Colorado Commissioner of Securities. The Colorado law, entitled the Protection of Vulnerable Adults from Financial Exploitation Act (“the Act”), allows investment advisers to contact a third party associated with the elderly or vulnerable client if the investment adviser reasonably believes exploitation is occurring, and outlines limited circumstances in which an investment adviser who suspects elder financial exploitation may delay disbursements requested by the client. The Act also provides immunity to investment advisers who make disclosures or delay disbursements pursuant to the act. Click here to view the Colorado Act.
Even when fraud is not suspected, an investment adviser firm can adopt a number of best practices for dealing with older or vulnerable clients. For example, as clients age they may benefit from receiving educational materials aimed at clients approaching retirement. Similarly, it may be helpful to them to receive printed materials and publications in a larger, easy to read font. Internally, the investment adviser firm may implement increased account reviews and contacts for investment advisory clients over a certain age, and may require its investment adviser representatives to document client communications and send follow ups that summarize what the representative and the client discussed.
So, what can your investment adviser firm do when serving older or vulnerable clients? For a start, RIA Compliance Consultants recommends that an investment adviser firm consider the following:
- Do you have any policies and procedures designed to address the special issues that may arise when assisting elderly clients?
- How does your investment adviser firm monitor and meet the changing needs of clients approaching retirement age?
- How does your investment adviser firm handle situations in which a client is perceived to have possible issues relating to diminished capacity or financial competence? Do you have concrete policies and procedures for your staff to follow, including an escalation plan?
- Has your state adopted a mandatory reporting scheme for financial professionals, and do you have procedures in place to comply with the law?
- Do you provide regular training on elder financial abuse and vulnerable person financial abuse to all staff, including back office staff who may not have regular contact with the client but may still notice suspicious patterns in the client’s communications or transactions?
- Does your investment adviser firm have policies and procedures in place to detect and prevent fraud when handling beneficiary change requests? Does your firm recommend clients seek legal counsel to ensure their beneficiary designations follow a plan that adequately carries out the client’s wishes?
This list is a good start, but there is much more your firm can do. RIA Compliance Consultants has developed a sample WSP/CoE section that investment adviser firms can incorporate into their compliance manual and regular practices. Click here to view the sample form in our online store. This form is included with Silver, Gold and Platinum packages. In addition, we have developed a new Elder Abuse and Vulnerable Adult Module in the RIA Express Compliance Review Tool. Click here to view the RIA Express Compliance Review Subscription in our online store.
If you would like more information regarding the RIA Express Compliance Review Subscription or any of our compliance support services, contact your consultant or click here to schedule an introductory call.