On May 18, 2021, South Carolina enacted new legislation intended to help investment advisers and broker-dealers protect clients who are vulnerable adults (such as seniors with diminished capacity) from financial exploitation. Similar to financial exploitation laws adopted by other states, South Carolina’s new law permits state registered investment advisers and broker-dealers to delay disbursements and transactions under specified, limited circumstances for a vulnerable client who is an “eligible adult” as defined by the statute. In addition, a registered investment adviser firm may contact other third parties previously designated by the vulnerable client, such as a trusted emergency contact, regarding the suspected financial exploitation. Firms are also permitted to report suspected financial exploitation to South Carolina’s Adult Protective Services and Securities Division on a voluntary basis. In the event that an investment adviser firm delays a transaction or disbursement, reporting to the specified agencies is mandatory. Click here to read South Carolina’s new financial exploitation law.
Prior to taking steps to act in cases of suspected financial exploitation, it is vital that investment advisers with clients in South Carolina understand the limits and requirements of the law, 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 South Carolina’s financial exploitation law introduces limited civil and administrative immunity for firms that wish to take action in cases of suspected financial exploitation, failure to follow the conditions outlined in the new law will make firms ineligible for the legal immunity that would otherwise protect the investment adviser or broker-dealer.
Importantly, although South Carolina’s law considers investment adviser representatives to be “qualified persons” for purposes of reporting suspected abuse and/or delaying disbursements and transactions, an investment adviser must ensure that its representatives do not 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 South Carolina’s financial exploitation law.
With the adoption of the new financial exploitation law, South Carolina registered investment advisers can expect the state securities regulator to show an increased interest in a firm’s policies and procedures regarding vulnerable client protections. 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.
If your state registered or SEC registered investment adviser firm is an existing client of RIA Compliance Consultants and has questions about South Carolina’s new financial exploitation law, 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.
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