When the SEC released its list of exam priorities for 2018, no one was surprised to learn that one of last year's themes concerning the protection of retail investors (and by extension, aging investors) continues into 2018. To quote the recently released document:
"This year, we will continue to prioritize protecting retail investors, particularly seniors and those saving for retirement, and pursue examinations of firms that provide products and services directly to them," (Source: 2018 National Exam Program Examination Priorities).
In fact, this particular theme is nothing new - the SEC has been focused on protecting aging investors for many years now. As the Baby Boomer population continues to age, this theme will become increasingly important, and will likely be a salient SEC exam priority theme well into the 2020s and beyond.
Consider: By 2040, the percentage of Americans 65 years old or older is projected to grow near 22%, a considerable increase over the measly 14% of 2013.
Despite this projected growth, a recent report found that a mere 13% of examined firms had any sort of escalation process for dealing with investors displaying diminished capacity, and only 30% had suitability guidelines tailored specifically toward senior investors.
If your firm does not have clear procedures in place for dealing with the financial exploitation of seniors, now is the time to get them in place.
SEC Will Continue Examinations of Investment Advisers and Broker-Dealers That Serve Aging, Vulnerable Investors
For 2018, the SEC has stated that they will, "continue to conduct examinations of investment advisors and broker-dealers that offer services and products to investors with retirement accounts," which in effect, means firms should, as has been the case for years now, be well prepared for a possible examination, especially with respect to vulnerable senior investors.
Firms that already have robust procedures in place for dealing with senior investors who may be exhibiting signs of diminished capacity would do well to examine closely their policies and procedures for any gaps. Firms that do not have robust procedures in place should implement such procedures immediately.
When reviewing where to focus enhancement of our internal controls, including training and policy and procedure development, it can be helpful to keep in mind that the SEC stated that they will focus especially on the following:
- "Investment recommendations"
- "Sales of variable insurance products"
- "Sales and management of target date funds"
- "Facilitation and involvement in retirement vehicles that primarily serve state and local government employees and non-profit employees, including 403(b) and 457 plans"
Protection of Vulnerable Investors - How Your Firm Can Help Aging Investors
Though we have written extensively on this subject before, here are just a few of our recommendations for firms who wish to help their aging investors now and through their twilight years:
- Perform a written cost/benefit analysis of potential investments for all retirees and retail investors
- Ensure the firm is providing sufficient details in all disclosures of costs and fees for investments, including compensation for advisors
- Train financial advisors on the stages of aging, dementia, Alzheimer's, and other forms of diminished capacity
- Train financial advisors on elder abuse scenarios and other aging considerations
- Develop a written "response plan" on what actions will be taken by the firm for concerns about aging clients
- Enhance internal control policies and procedures to help protect aging clients
- Develop suitability considerations for aging client products and services
- Implement escalation processes for suspicions of client dementia, Alzheimer's, diminished capacity, or elder abuse
Remember, the push by both the SEC and FINRA to focus on such internal controls has been in motion for quite some time. Financial exploitation of senior investors will only become more salient as this population ages out of the workforce completely and becomes ever more reliant on their investments to sustain them through the ends of their lives. Firms who are already behind in this area only put themselves at greater risk with each passing year.
Add a comment
- SEC Releases Last-Minute Updates to Form CRS FAQs
- Top 3 Considerations During the Breakaway & Transition Process
- Succession Planning: Identifying a Successor
- California AG Submits Final CCPA Rules for Approval
- ICO To Return $25 Million to Investors
- SEC Charges Morgan Stanley Smith Barney with Providing Misleading Information to Retail Clients
- FINRA’s Senior Help Line: Celebrating 5 Years of Providing Protection
- How To Start: Are You Evaluating Your Firm’s Whistleblower Policies?
- Three Firms’ Failure to Disclose Conflicts of Interest Lead to Almost $1 Million in Disgorgement, Interest
- OCIE Risk Alert—Examinations Focused on Initial Compliance With Regulation Best Interest
- Investment Advisers
- Securities and Exchange Commission (SEC)
- Due Diligence
- Aging Clients
- Transition Services
- Policies and Procedures
- Broker Protocol
- Virtual Currency
- California Consumer Privacy Act (CCPA)
- Dodd-Frank Act
- Advisers Act
- Securities Law
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Form U5
- Private Equity
- Private Funds
- Regulation Best Interest
- Hedge Funds
- Regulatory Examinations
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo