The Ontario Securities Commission recently published research findings focused on improving investment advisory client participation in designating a trusted emergency contact (referred to in the report as a “trusted contact person” or “TCP”). Although designating a trusted emergency contact is an important tool for investment advisers to protect a senior or vulnerable client’s investments against financial exploitation or losses due to diminished capacity, many clients decline to do so. This new report aims to help investment advisers and broker dealers utilize behavioral science to encourage its senior and vulnerable clients to name a trusted emergency contact. Despite having an intended audience in Canada, the report highlights a number of useful insights and strategies that can be implemented by investment advisers across the United States. To read the full report, click here.
Common Barriers to Naming a Trusted Emergency Contact
The report, “Protecting Seniors through Behavioral Insights,” found that many older investors underestimate the likelihood of negative events happening to them, such as becoming the victim of fraud or financial abuse. Similarly, it is common for investors overestimate their own abilities and subconsciously avoid thinking about negative events. Other individuals surveyed for the report expressed concern that designating a trusted emergency contact would compromise their privacy or give the designated contact decision-making rights over the client or account. These concerns, biases, and mental shortcuts can all lead investors to underestimate the importance of naming a trusted emergency contact.
Increasing Client Involvement in Naming a Trusted Emergency Contact
Four main strategies emerged from the research findings that investment adviser firms and broker dealers can adopt to encourage more clients to name a trusted emergency contact.
1. Simplify the information provided to clients. Present information using plain, easy to understand language.
2. Educate the client on the likelihood they will become a victim of financial exploitation, and how that risk increases with age.
3. Set a social norm. Inform the client about what other clients like them typically do.
4. Make the designation an active (“yes/no”) choice, and avoid presenting the trusted contact designation as a form that can be ignored or deferred.
In addition, it can be helpful for the investment adviser’s request to underscore that the trusted emergency contact will only be contacted in the event of suspected financial fraud or exploitation of the client or if the investment adviser suspects diminished capacity that affects the client’s ability to make financial decisions. Some clients will need to be reassured that the person designated as their trusted emergency contact will not be given unrestrained access to the client’s personal information, and that the mere designation as a trusted emergency contact does not confer any ownership or beneficial interest in the client’s account to the trusted emergency contact.
RIA Compliance Consultants has recently updated the sample form “Senior/Vulnerable Clients – Client Authorization to Communicate with Trusted Emergency Contact.” This sample form is included with Bronze, Silver, Gold and Platinum Packages, or can be purchased a la carte here. This updated sample form is also included in the “Senior/Vulnerable Clients – Compliance Package”. 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 (Newly Updated)
- 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.
If your state registered or SEC registered investment adviser firm is an existing client of RIA Compliance Consultants and has questions about protecting your senior and 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.
- South Carolina Adopts Financial Exploitation Law to Help Protect Vulnerable Adults – June 2, 2021
- Nebraska Enacts Law Giving Investment Advisers Ability to Protect Seniors and Vulnerable Adults from Financial Exploitation – April 10, 2021
- How Investment Advisers Can Better Report and Protect Senior & Vulnerable Clients Against Elder Abuse – Recorded Webinar
- SEC Announces 2021 Examination Priorities for RIAs – March 15, 2021
- New NASAA Report on Diminished Capacity Among Investment Adviser Representatives – August 8, 2020
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.