On March 31, 2021, Nebraska enacted the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act (the “Act”), which is intended to help investment advisers and broker-dealers protect clients who are vulnerable adults from financial exploitation. Prior to adoption of the new law, investment advisers and broker-dealers generally had limited recourse to act in cases where a financial firm or its representatives developed reasonable suspicion that a client was the victim of financial exploitation. Now, under clearly defined and limited circumstances, the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act permits investment advisers and broker-dealers to delay transactions and disbursements for the account of an “eligible adult” reasonably suspected of being or having been the victim of financial exploitation. In addition, the Act allows investment advisers and broker-dealers to notify certain third parties of the suspected exploitation and to provide relevant books and to specified state agencies investigating the suspected exploitation. Click here to read the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act.
Prior to taking steps to act in cases of suspected financial exploitation, it is vital that investment advisers with clients in Nebraska understand the limits and requirements under the Act, including which clients are considered vulnerable adults (i.e., “eligible adults”) and what steps must be taken when delaying transactions, sharing information with third parties, or providing records to state agencies. Although the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act introduces limited civil and administrative immunity for firms that wish to take action in cases of suspected financial exploitation, failure to follow the conditions set out within the Act will make firms ineligible for the legal immunity that would otherwise protect the investment adviser or broker-dealer.
Which clients are considered “vulnerable adults” under the new Nebraska legislation?
An “eligible adult” in Nebraska is defined as (i) a senior adult over the age of 65 or (ii) a vulnerable person eighteen years of age or older who has a substantial mental or functional impairment or for whom a guardian or conservator has been appointed under the Nebraska Probate Code. The liability protections of the Act only extend to investment advisers and broker-dealers to the extent that the client in question is an “eligible adult”.
When can a Nebraska investment adviser delay transactions and disbursements if financial exploitation is suspected?
First, the investment adviser or broker-dealer must have reasonable suspicion that financial exploitation is occurring or has occurred. Reasonable suspicion must be based on an internal review with documented findings. If the investment adviser determines on review that the requested transaction or disbursement may result in financial exploitation of an eligible adult, it can, but is not required to, delay the transaction or disbursement. If a delay is implemented, the firm must then notify the account holders (excluding any persons suspected of the alleged exploitation) and relevant state agencies specified under the Act. The firm must then continue its internal review and report its findings to the state agencies upon request.
How long can a transaction or disbursement delay last?
The delay will expire upon (i) the investment adviser’s internal determination that financial exploitation is not occurring, or (ii) fifteen days after the delay was implemented, unless extended by action of a state agency. In some cases, the delay may be further extended or modified by court order.
If an investment adviser suspects financial exploitation of a vulnerable adult client, who can the firm contact?
Generally, an investment adviser is not permitted to disclose confidential information to third parties without prior authorization of the client. The Act, however, now permits “qualified persons” (as defined under the Act) to contact “any third party previously designated by the eligible adult or any person allowed to receive notification under applicable law or any customer agreement” without risking civil or administrative liability that might otherwise arise – provided that the notification is done in good faith and with the exercise of reasonable care. The Act also provides immunity if the investment adviser fails to notify the vulnerable person that a disclosure has occurred.
A “qualified person” includes any broker-dealer, investment adviser, agent, investment adviser representative, or person who serves in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser. To reduce risk, investment advisers should not permit representatives to independently make notifications or take other external actions regarding suspicions of financial exploitation. Such concerns should first be escalated internally for review and action by the firm’s compliance and/or legal teams.
What records must a Nebraska investment adviser provide to state agencies during an investigation of suspected financial exploitation of a vulnerable adult?
The Act requires that broker-dealers and investment advisers in Nebraska provide access to or copies of records that are relevant to any suspected or attempted financial exploitation of an eligible adult to (a) the Adult Protective Services Division of the Department of Health and Human Services, (b) other agencies charged with administering state adult protective services laws, and (c) law enforcement, either as part of a referral to the agencies or to law enforcement, or upon request of the agencies or law enforcement pursuant to an investigation. Provided that these records are provided by a “qualified person” in good faith and exercising reasonable care, the qualified person making the disclosure will be immune from civil and administrative liability for the disclosure. Importantly, the Act provides that all records made available to agencies and law enforcement in compliance with the Act will not be considered public records subject to disclosure pursuant to Neb. Rev. Stat. Sections 84-712 to 84-712.09.
How does a Nebraska investment adviser comply with the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act?
As noted above, an investment adviser must not permit its representatives to independently make notifications or take other external actions regarding suspicions of financial exploitation. Such concerns must first be escalated internally for review and action by the firm’s compliance and/or legal teams. An investment adviser should implement a robust training program to ensure its representatives can identify and escalate suspicious behavior to the appropriate internal personnel, who are in turn well-versed in conducting investigations and taking action in accordance with the Act.
State securities regulators have exhibited an increased interest in vulnerable client protections in recent years and regularly expect investment adviser firms to have policies and procedures in place to protect vulnerable clients. Consequently, an investment adviser cannot avoid addressing this issue in its compliance program.
RIA Compliance Consultants has prepared the “Senior/Vulnerable Clients – Compliance Package” to assist firms in identifying and reporting abuse of senior and vulnerable clients. The documents included in the package are listed below. To see a description of the document, click on the title and follow the link.
- Senior/Vulnerable Clients – Training (PowerPoint)
- Senior/Vulnerable Clients – Training Quiz
- WSP/CoE Section Update – Protecting Older and Vulnerable Clients with Diminished Capacity
- Senior/Vulnerable Clients – Client Authorization to Communicate with Trusted Emergency Contact
- Senior/Vulnerable Clients – State Reporting Requirements
- Senior/Vulnerable Clients – Internal Reporting Form for Exploitation
The “Senior/Vulnerable Clients – Compliance Package” is available here. Additionally, any of these documents can be purchased a la carte here. A free recorded webinar “How to Report Elder Abuse to Adult Protective Services” is available here. Also available for purchase is the recorded webinar “Compliance Concerns for Investment Advisers Working with Senior Investors and Vulnerable Clients,” available here.
Finally, when reviewing its policies and procedures related to abuse of vulnerable clients, an investment adviser firm should also consider whether it has adequate policies and procedures to identify investment adviser representatives who have diminished capacity and mitigate such risks. RIA Compliance Consultants has prepared a checklist, Rep – Diminished Capacity of IAR (also referred to as Senior/Vulnerable Clients – Diminished Capacity of IAR), which assists in identifying some of the issues and best practices that an investment adviser firm should consider with respect to an investment adviser representative who may have diminished capacity or cognitive impairment. This item can be purchased here.
RIA Compliance Consultants encourages investment adviser firms in Nebraska to closely review the Nebraska Protection of Vulnerable Adults from Financial Exploitation Act and to update their policies and procedures in accordance with the Act. If your investment adviser firm is an existing client of RIA Compliance Consultants and would like assistance in reviewing your policies and procedures or practices relating to vulnerable clients, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.
SEC Announces 2021 Examination Priorities for RIAs – March 15, 2021
SEC Announces 2020 Exam Priorities – January 16, 2020
Making the Reporting of Elder Abuse Easier for Investment Advisers – November 28, 2019
2019 SEC Examination Priorities – December 27, 2018
Financial Exploitation of Elderly and Vulnerable Clients – September 6, 2017
Compliance Concerns for Investment Advisers Working with Senior Investors and Vulnerable Clients – Recorded Webinar – July 19, 2018
The information contained in this blog post is general in nature intended for educational purposes only and is not intended to be a comprehensive analysis of this topic. It is not intended to constitute compliance consulting advice or apply to any particular investment adviser firm’s specific situation. For more information, please see our Disclosures webpage.