WASHINGTON -- FINRA is following many states in pressing forward with a rule that aims to give advisers more tools to combat elder abuse, a large and growing problem that many financial professionals are struggling to address.
FINRA has developed a rule that aims to better protect elderly clients and also give firms latitude to intervene when they suspect a client is being exploited, which is often coupled with diminished mental capacity.
The new rule, which will take effect Feb. 5, 2018, will require brokers to attempt to obtain a trusted contact person for each client's account, and will afford them a safe harbor from liability if they delay a transaction request in situations where they fear that a client is the victim of financial abuse.
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"There's nobody who can spot financial exploitation faster than a financial adviser," Mary Tucker, manager of the elder client initiative at Wells Fargo Advisors, said here at FINRA's annual conference.
Estimates of the financial toll of elder abuse are all over the map ― from nearly $3 billion annually to more than $36 billion ― in part because so many instances go unreported.
STATE INTERVENTION
Many state officials have come to the same conclusion. The North American Securities Administrators Association has developed a model act that has been winning the support of many state lawmakers for legislation that closely resembles FINRA's rule.
The NASAA model act would require brokers and advisers to report instances of suspected elder abuse to state authorities, and would authorize them to delay disbursements of funds for up to 15 days if they believed their clients were being abused, conferring civil and administrative liability protections in those cases.
Texas became the most recent state to take up such a measure, with the legislature recently passing a bill that tracks closely to NASAA's model act, requiring brokers to report suspected abuse and offering a 10-day hold on suspicious disbursement requests.
Stocks and Puerto Rican bonds are the focus of many cases among clients, advisers and firms.
That move won plaudits from the Financial Services Institute, which has identified the prevention of investor exploitation as one of "our main advocacy priorities," according to CEO Dale Brown.
"We are one step closer to better protecting seniors from predators while ensuring financial services professionals do not inadvertently violate privacy laws," Brown says in a statement.
Efforts to give advisers more tools to fight elder abuse come as millions of baby boomers are heading into their golden years, and increasingly falling prey to all manner of financial scams. Estimates of the financial toll of elder abuse are all over the map ― from nearly
SPOTTING THE SIGNS
FINRA and state officials stress that advisers must play a pivotal role in detecting and responding to signs of elder abuse or diminished capacity, which is so often a precursor to exploitation.
"I think the advisers are being put in a position more and more where they have to start recognizing what these signs are, and the firms have to work to develop the process so they can work through the issues as well," said Yvette Panetta, deputy district director of FINRA's Boca Raton, Florida, office.
But how does that work, in practice?
Ruth Kolb Drew, director of family and information services at the Alzheimer's Foundation, counsels advisers to redouble their efforts to intimately know their customers' patterns of behavior and decision-making.
"We are one step closer to better protecting seniors from predators while ensuring financial services professionals do not inadvertently violate privacy laws," FSI CEO Dale Brown said.
"It really starts with ... knowing the person and knowing what's normal for them, what's to be expected from them, and is this a change, is this out of character for them. That to me is the biggest red flag," Drew said.
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FINRA charges restitution but forgoes punitive fines for the three firms after crediting them for cooperating in its investigation.
But she also warns of false flags, noting that advisers need to be cautious when opting to involve a family member or take another action, such as notifying law enforcement or adult protective services.
"Because making a bad decision doesn't mean that you have Alzheimer's or some other dementia," she said.
Christopher Majeski, a managing director and compliance executive at Merrill Lynch's Global Wealth and Investment Management arm, suggested that advisers need to take the long view in evaluating their clients' capacity, noting that severe cognitive decline is "rarely going to happen overnight."
"What you're going to start seeing is changes over time, changes from a behavioral standpoint, from a decision-making standpoint, from a social standpoint," Majeski said. "And those are red flags to raise your hand and say, 'Huh, what's going on here. This is outside of the norm.'"
But many advisers fail to put a plan in place for dealing with the unhappy scenario of a client contracting Alzheimer's or another form of dementia. Majeski acknowledged that those conversations can be difficult, but suggested that advisers view planning for such a contingency as a regular part of their client interactions to make the discussion less uncomfortable for both parties.
"It shouldn't be a conversation that is separate and distinct from what we do today around know your customer, suitability, supervision," he said.
The Alzheimer's Association advocates a similar approach, according to Drew.
Advisers should "talk about Alzheimer's when we talk about all the other things that we talk about in financial planning that we hope won't happen but we plan for," she said. "And that includes having trusted contacts for everybody, and talking about it as early as possible."
