Protecting Senior Investors: NASAA’s Response to Senior Investor Exploitation

By Michael Williford, Fall 2016 Student Intern

It shouldn’t come as any surprise that senior citizens have long been the target of investment scams. Everything from Medicare phishing scams to more traditional boiler room setups have targeted seniors in recent years. FINRA attempted to tackle the issue in September last year, with an initiative that would allow a firm to place a temporary hold on a disbursement of funds or securities to allow the firm time to notify the senior’s trusted contact when there is a reasonable belief the senior is being financially exploited.

The rise in the level of attention senior investors are receiving is largely a product of a demographic shift. According to the Pew Research Center, roughly 10,000 people turned sixty-five today in America. In fact, 10,000 baby boomers will reach the age of sixty-five every day for the next nineteen years. So the rise in the financial exploitation of senior citizens is built in part on the fact that are simply more victims now than there have been at any other time in American history.

So, what are lawmakers and regulators doing to stem the tide of older American victims?

The North American Securities Administrators Association (NASAA), an organization made of state securities regulators, last month released a guide designed to help broker-dealers and investment advisers implement policies that will better protect vulnerable seniors from the kind of exploitation that can wipe out a retirement account or the savings a retiree relies upon. The Guide focuses on five key concepts. This blog will focus on one each day this week. Let’s dive right in.

  1. How to Identify Vulnerable Individuals

Although the technical legal definition of an “eligible adult” may vary from state to state, NASAA recommends establishing the age of sixty-five as the threshold at which individuals should enjoy greater protection from age-related financial exploitation under state securities laws. Seven states “have adopted to statutes or regulations that set forth a legal framework applicable to broker-dealers and/or investment advisers—or other financial institutions—that are designed to assist” in fighting the financial exploitation of older adults. NASAA adopted a Model Act in January 2016 that it hopes will serve a s a guide for jurisdictions interested in constructing their own protective rules.

It’s worth noting that state rules designed to protect “eligible adults” often include people with certain mental or physical disabilities, in addition to adults sixty-five and over. For example, Georgia has a law, O.C.G.A. § 30-5-4, that makes it illegal to improperly use a disabled person’s resources, including financial resources. The same law also applies to persons sixty-five or older.

NASAA recommends, as part of broker training, that firms put in place policies to identify potentially vulnerable investors. Specifically, the recommendations include training to help spot red flags like a decline in a person’s ability to do simple math problems, an inability to understand important aspects of their investment account, or difficulty managing a simple checkbook. If the person’s behavior becomes erratic, including a decline in memory, disorientation with surroundings or social settings, or a decline in the person’s basic appearance, then brokers and family members should be wary of substantial changes in that person’s investments.  Other red flags include a sudden interest in get rich quick schemes, anxiety about personal finances, the failure to pay bills, or extreme actions that are inconsistent with the individual’s current long-term financial goals.

Although not all states have adopted NASAA’s Model Act, the number of states that have regulations in place to protect senior investors is growing rapidly. Don’t be afraid to contact your state’s Department of Human Services to find out what recourse you might have if you’ve been taken advantage of. Equally important, always do your research before you invest. Use BrokerCheck to learn about the person you’re considering doing business with. It’s free, along with other FINRA resources you can use to protect yourself before investing. Tomorrow, we’ll discuss some of the reporting requirements NASAA recommends.