Published on Nov 26th, 2019 | Posted in Articles

Baby boomers are growing older, and that is transforming our national demographics. By 2035, it is estimated that 78 million senior citizens will live in the United States. The median age of U.S. citizens would rise from 38 today to 43 by 2060.

Those baby boomers also control a lot of assets, including more than half of household wealth. Unfortunately, this also means the number of seniors who will become targets to be tricked, conned or exploited for their wealth will remain high. As seniors age, they become more vulnerable to scams by people posing as “helpers.” It can be harder for them to determine who trust with new technology they don’t understand used to exploit them.

With this aging population in mind, the Security and Exchange Commission’s (“SEC”) Office of Investor Advocate recently released an overview of its efforts to protect this aging population of seniors from financial exploitation. The report explores how the SEC is working to protect seniors and serves as an outline for financial service professionals as well as lawmakers, lawyers and the general public to prevent senior financial exploitation.

Financial services firms, including compliance, have a role to play in this movement. Senior investors can be better protected through the use of best practices and implementation of best practices by financial services firms.

Table of Contents:

Who Is a “Senior/Vulnerable” Investor?

The North American Securities Administrators Association (“NASAA”) published the NASAA Model Act in January 2016. The act, which is designed to protect seniors, defines who is a vulnerable adult — anyone aged 65 or older or those individuals above the age of 18 who would fall under the provisions of a state’s adult protective services statute. This includes any adult who exhibits mental or physical disabilities, regardless of their age.

So far, seven states now have statutes or regulations that create a legal framework that applies to investment advisers and/or broker-dealers or any other financial institution. These regulations are designed to assist the states in combating the growing problem of senior financial exploitation. Several of the states, such as Vermont, have used the NASAA Model Act as the basis for their regulations while other states have enacted laws that contain provisions in the act.

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The Problem of Senior Investor Abuse

Both the SEC and NASAA have identified senior financial exploitation as a serious problem that will only get worse as the population ages. Unscrupulous financial investors and brokers or an individual known to the client, sensing that an older person may not be as sharp as they used to be or is dealing with physical or mental disabilities brought on by aging, may be tempted to try to exploit the situation to their advantage.

The NASAA has created a guide to help brokerages and investment firms develop policies and procedures to protect senior clients from financial exploitation. Both the SEC and the NASAA recommend that brokerages and investment firms train staff that regularly deal with senior investors — as well as individual investment professionals — to learn how to spot the warning signs that could make them vulnerable to financial exploitation.

Warning Signs

Warning Signs Senior Investors May Be Vulnerable to Exploitation

The senior investor may be vulnerable to exploitation if they exhibit certain tendencies, such as:

  • Problems with simple math.
  • Problems understanding key aspects of their account.
  • Trouble managing a checkbook.
  • Confusion about basic financial terms and contracts such as wills, annuities or mortgages.

The senior investor may also exhibit signs of erratic behavior, such as:

  • Problems communicating.
  • Problems appreciating the consequences of any decision.
  • Memory loss.
  • Appear disoriented in public settings.
  • Appearance is uncharacteristically shabby or unkempt.

The senior investor may make unusual decisions about the use of money or investments, such as:

  • An unusual interest in get-rich-quick scenarios.
  • Extremely anxious about their personal wealth.
  • Make decisions at odds with their expressed long-term financial commitments and goals.
  • Problems fulfilling their financial obligations, such as paying a bill or repeatedly paying the same bill.

Warning Signs Senior Investors Are Being Exploited

The SEC and the NASAA also say brokerages and investment firms, as well as individual investment advisers, should learn how to see the signs that seniors are being exploited. The signs include:

  • Repeated and unusual wire transfers or cash withdrawals.
  • Being nervous or anxious when visiting the office of their investment adviser or talking to them on the phone.
  • Being unaware of their financial status.
  • Other parties constantly interfering with a financial adviser’s ability to speak with a senior investor.
  • Reluctance to discuss an unusual or unexplained financial windfall.
  • Sudden, unexpected changes to important financial documents such as wills, account beneficiaries, trusts or powers of attorney.
  • Withdrawing large amounts of capital or closing an account without any regard for penalties or taxes.

When staff who deal with senior investors learn to spot these signs, they can take the appropriate measures to help protect their clients by either checking with a trusted source (should they have a trusted point of contact) close to the investor or notifying the firm that unusual activity is happening in the investor’s account.


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What the SEC and FINRA Say About Senior Abuse

Recently the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has prioritized protection of senior investors by conducting exams of dealers and brokers as well as launching an initiative researching investment advisers and their relationship with senior clients.

Financial Industry Regulatory Authority (“FINRA”) works to ensure fair financial markets and protect every investor. In order to be a FINRA member, investment professionals need to follow its guidelines. OCIE has looked at how dealers and brokers implement and comply with the FINRA Rule 2165, which is new, and amended FINRA Rule 4512:

  • FINRA Rule 4512 requires members to conduct reasonable efforts to gather contact information for a trusted individual when a non-institutional customer’s account is open or when that account information is updated. The trusted contact person can be a resource when the FINRA member voices concern about possible senior financial exploitation.


  • FINRA Rule 2165 permits a member who believes a senior is being financially exploited or may be about to be financially exploited to temporarily hold any financial disbursements from the account of the “specified adult” customer they feel is being financially exploited. A “specified adult” falls under the NASAA’s Model Act definition of a senior or another individual who may be mentally or physically impaired.

OCIE National Initiative Targets Firms With Senior Clients

As part of its regular series of exams, OCIE studied more than 200 investment advisers who have lots of accounts owned by senior investors or firms with a great share of their assets managed by senior clients. These risk-based exams looked at these firms’ policies, practices and procedures in dealing with clients who are over 62 years of age (different than that of NASAA and FINRA who are looking at clients who are over 65 years of age).

The exam looked at important issues like providing trusted contacts, how advisers dealt with diminished capacity, how the firms handled requests to switch beneficiaries, and if the firms were providing training to spot signs of senior financial exploitation.

While the OCIE found it’s too early to make any conclusions about how firms and advisers deal with new issues facing senior investors, it did find some weaknesses in many policies and procedures, including:

  • Policies did not adhere to the adviser’s particular business model.
  • Policies were unspecific.
  • Policies failed to state steps advisers needed to take if they suspected senior financial exploitation.
  • Policies lacked defined criteria for determining if a client fell into the senior category.
  • Supervisory systems did not code information on areas such as diminished capacity.
  • Guidance was not specific enough about spotting red flags around diminished capacity.

Even if a firm suspected senior financial exploitation and it had a policy that required it to contact a trusted individual, the same policy did not require the client provide the name of a trusted contact while establishing an account.

What’s Being Done by OCIE

It is important that brokers, dealers and investment advisers adapt to this new financial environment and what it means for their senior investors. The OCIE paper outlines some of the work the SEC is currently conducting, which covers the spectrum from policymaking to education, exams and enforcement.

1. Public Education and Outreach

The SEC works to inform the general public on how they can protect themselves against financial exploitation, and seniors are one of the main audiences for this information. Activities include education and outreach through events like tele-townhalls, in-person events during public gatherings, and publishing pamphlets, webpages and online content specifically oriented toward seniors. The public can also reach out to the SEC to submit complaints or ask questions.

2. Exams

As mentioned above, the OCIE recently conducted risk-based exams with over 200 investment advisers whose firms had a significant number of senior clients.

3. Enforcement

The SEC’s Division of Enforcement’s Retail Strategy Task Force, which was created in 2017, investigates fraudulent activities that often target vulnerable members of the general public, including seniors.

4. Regulatory Policy

The SEC recently approved the two FINRA rule changes that provide new ways to protect senior investors. The SEC also subsequently issued a no-action letter that will help mutual funds use tools similar to the FINRA rules to deal with seniors’ accounts that are held by the fund. It includes the ability to place a seven-day suspension of redemptions on mutual funds when senior financial exploitation is suspected.

5. Challenges to Protect Senior Investors

There are several challenges that the SEC faces in its attempts to protect senior investors. These include demographic changes such as diminished capacity brought on by age that create opportunities for senior financial exploitation.

Yet another challenge faced by the SEC is new technologies that allow unethical financial advisers or others to take advantage of seniors. As well, the SEC is helping policymakers find the right balance to protect seniors while also safeguarding their privacy rights and autonomy.

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Best Practices to Protect Senior Clients

The SEC suggests some best practices for professionals and financial firms to protect senior investors. These suggestions encourage investment firms, brokers-dealers, and advisers to take actions, beyond regulatory compliance, that will protect their senior investors. These include:

  • When an investment adviser, broker-dealer or investment firm suspects senior financial exploitation is taking place, they should pause disbursements until the situation has been clarified.
  • When senior financial exploitation is suspected, investment entities should reach out to that client’s trusted contact, should one be listed by the client. This should also happen if the investment entity is concerned about a senior client’s diminished capacity, health, suspected cognitive diminishment or any issue a trusted contact could clarify.
  • If a firm or individual suspects senior financial exploitation, they should consider notifying the appropriate regulatory authorities, following the completion of an internal investigation.
  • Firms should implement tailored compliance policies and procedures to protect senior clients.
  • Firms should provide training to the appropriate staff or affiliates on informing seniors about red flags. Training should also include how to report concerns either internally or externally. The more specific the reporting training, the better.

An investment firm should ensure they stay abreast of these approaches and put them into practice. The SEC and FINRA are constantly implementing new rules and guidances, so it’s critical to stay abreast of changes and remain in compliance as they evolve.


Reach Out Today to Learn More About Vigilant Compliance

Vigilant Compliance, LLC, is a leading full-service compliance firm. Our staff of experienced financial and legal professionals are knowledgeable about the diversified areas of compliance. We can give your senior management, board of directors, fund sponsors and investors confidence in knowing that an independent, knowledgeable and experienced firm is working on your company’s behalf to ensure all of your funds, advisers, and broker-dealers are in compliance with applicable regulatory requirements.

Our clients include registered investment advisers, broker-dealers, registered investment companies, business development companies and private equity firms.

When you hire Vigilant, your company has access to our extensive client base, our broad-range of experience in asset management and our multi-disciplined capabilities. We can ensure you are not just keeping pace with the industry’s latest methodologies, but that you move into the lead, including on important matters such as protecting seniors from financial vulnerabilities.

If you are interested in learning more about what we can do for your company, you can contact us at 1-800-229-1855. Calling internationally? Reach us at 01-44-207-183-2028. You can also request a proposal or visit our contact us page. You can leave us some details about how we can reach out to you and how we may be able to help you. A member of our team will get back to you as soon as possible.


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Modified: February 25, 2021