Preparing for 2018’s Regulatory Focus: Considerations for Servicing Aging Clients

Growing older is something that every single one of us does. It’s a simple fact of life that we will all age with time.

Those who advise aging clients may be among those that are the most acutely aware of the changes in what those investors need. Senior investors and their retirement investments, in particular, have become a point of scrutiny for the SEC and FINRA as they seek to protect vulnerable investors.

Servicing Aging Clients is More Than Just Financial Industry Knowledge

Due to the nature of handling clients as they age, financial advisors and compliance officers both require training beyond simply knowing what the financial regulations are. New and amended rules in 2018 (more details later in this post) indicate the increased focus that FINRA will have on financial advisors who service senior investors. Understanding the regulations and training your team on these new requirements is essential.

In addition, training your financial advisors on the stages of aging and considerations as a result is equally important. Consider, for example, the stages of dementia and elder abuse scenarios; these type of case studies can also help advisors recognize when something is amiss.

When your advisors do recognize a situation that requires intervention, having a documented “response plan” can help them respond appropriately. To effectively help a vulnerable investor, the advisor may need to reach out to emergency contacts to specific law and regulatory authorities. Your response plan will help ensure that the advisor handles the situation correctly, hopefully resolving the issue in the best manner possible.

There’s a lot to consider in a compliance program for servicing aging clients, and for financial advisors working with retirement accounts, plenty of thought should go into how the firm will work with their investors as they age.

FINRA’s New and Amended Rules in 2018

Starting early in 2018, FINRA is updating Rule 4512, as well as adding Rule 2165.

Rule 4512 is being amended to require Member firms (such as broker-dealer custodians) to make reasonable efforts to obtain contact information for someone trusted, who can be contacted by the Member should financial exploitation be suspected. As a part of this, the Member will disclose in writing to the customer than they or an associated person of the Member is authorized to contact that trusted contact.

The information shared as a result of this can be used to obtain information about the customer’s health status, confirm the specifics of their current contact information, address potential financial exploitation issues, or acquire the information for a legal guardian, executor, or similar contact for the account.

Important to note is that some broker-dealer custodians may require that all financial advisors must provide a trusted contact person no matter what, while others may not require that information so long as the financial advisor proves that reasonable efforts were made to obtain it. Which is the better model? With the SEC and FINRA both focusing on senior investors in 2018, the answer requires careful thought on your part.

In addition to the amendment to Rule 4512, the new FINRA rule 2165 is intended to help prevent the financial exploitation of specified adults.

The new rule allows a Member to place a temporary hold on dispersing the funds or securities of a “specified adult” if they have a reasonable belief that financial exploitation has occurred.

However, if that hold is placed, there’s several things a Member must do as a result. For more details about both rules, please read our last Risk Management Tip by clicking here.

How does your firm currently handle its aging investor obligations?

Mitigating and preventing financial abuse of vulnerable adults is something that most of us view as not just a regulatory necessity, but an ethical one as well. Financial advisors can take proactive measures to help protect the investors they advise, but they can only do so when equipped with the appropriate information and training.

Regulations related to aging investors are only expected to grow, especially as more and more of our population retires and becomes potentially vulnerable. Is your firm prepared for next year, and the years to come?

If you’re looking for help in developing plans and procedures, or internal controls, related to investors you advise, click here to talk to the team at Jacko Law Group, PC. Our managing partner, Michelle L. Jacko, Esq., is an industry leader when it comes to regulatory considerations for protecting vulnerable or aging investors. She’s spoken at multiple conferences and events, most recently moderating a discussion at IA Watch, West Coast and participating at Schwab’s IMPACT panel discussion in November, regarding compliance controls and protocols for aging clients. 

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