Bates Research  |  06-28-17

NASAA Publishes Senior Investor Study Findings Focusing on Five Key Areas for Broker-Dealers

Results published in a recent North American Securities Administrators Association (“NASAA”) survey about firms’ practices and policies applicable to senior customers demonstrate that broker-dealers have a variety of processes and procedures in place to identify and report suspected diminished capacity or abuse. “Among the encouraging findings,” reported NASAA, “are that virtually all the broker-dealers had both internal processes to identify and internally report suspected diminished capacity or senior financial abuse, and trained their staff on these policies.” This and other findings were published in a study released on June 15, 2017, the latest effort by NASAA to continue to move the industry forward on the subject of serving seniors in the financial system. The study utilizes data from more than 60 firms “regarding account documentation, policies and procedures, training, supervision of seniors’ accounts, and escalation of senior issues.”

Of the approximately 2500 reported cases involving seniors used in this study, NASAA reported that those who fell between 81-90 years old accounted for 45% of all cases.  Financial abuse and exploitation by third parties and family members, as well as other exploitation of those with diminished capacity, accounted for 78% of the cases examined.

Key Findings

The study is divided into sections on 1) supervisory procedures, 2) training, 3) escalation and reporting of senior issues, 4) resolution of senior issues and 5) the use of the trusted contact form.

Supervisory Procedures

The NASAA Project Group (“Project Group”) that conducted the survey made several determinations concerning firm supervisory procedures: first, based on a finding that only 46% of the broker-dealer firms surveyed had some policy for defining senior customers, the Project Group concluded that firms need to provide more clarity and guidance in their policies and procedures regarding who is considered a senior customer or other vulnerable adult. This is particularly important, they said, for firms “operating in states with laws mandating reporting of suspected exploitation of vulnerable adults and individuals over a specified age.”

Second, the Project Group found that while 90% of the broker-dealer firms described some level of staffing to address senior-related issues, only 34% had a dedicated team devoted to it. (Most firms had some sort of internal process for addressing senior issues such as a central response unit fielding FINRA Senior referrals.) The Project Group recognized that firms were considering the management of senior issues in a variety of ongoing processes.

Third, on questions of suitability, communication and escalation, the Project Group determined that “a total of 75 percent of the broker-dealers had procedures in place regarding the suitability of investments for seniors,” but the “substance of the procedures varied greatly.” The Project Group “confirmed the importance of updating the firm’s written supervisory procedures to incorporate senior-specific policies that have been developed but [that] may be located and addressed somewhere other than the firm’s formal procedures.” They also noted: “Whether a firm responded affirmatively that it had a formal policy for seniors did not correlate with the extensiveness of its suitability procedures.”


Approximately 95% of the firms surveyed provide some training related to senior issues, though the Project Group found that the “depth of training varied considerably.” Only 32% of the firms with training on senior issues provided training on all of the following five topics: suitability, communications, emergency contact forms (the least common training topic), recognizing signs of diminished capacity, and recognizing the signs of elder financial abuse (the most common training topic).

Escalation and Reporting

The Project Group found that approximately 94% of the firms surveyed had some form of internal escalation process. “The decision to report concerns to outside agencies was most often made by an internal group (26%) or by the Legal or Compliance departments either solely or in combination with others (42%). Reporting by firms to adult protective services occurred in at least 62% of internally escalated cases. Less frequently, cases were reported to law enforcement (4%) or state securities regulators (<1%).

Resolution of Senior Issues

The Project Group asked firms to provide examples of the resolution of senior issues. The variety of examples provided by the respondents highlights the complexity of the issues presented. In the subset of questions related to instances in which withdrawals might be restricted, more than 77% of the firms responded that they might restrict withdrawals if there was suspicion of financial abuse or fraud, 9% said they would rely on a case-by-case determination and 15% would only impose a restriction if ordered by a court. As noted, these decisions are most often made by an internal committee or specialized risk team. Recognizing that a “highly prescriptive process where only the highest level employees are authorized to initiate action to restrict withdrawals may hinder timely efforts to protect senior investors from financial loss due to exploitation or diminished capacity,” the Project Group recommended that “firms should assess the approval structure and process for restricting withdrawals.”

Use of the Trusted Contact Form

Less than half of the broker-dealers reported that they had developed a form for customers to identify an emergency or trusted contact person. (This squares with the results of the broker-dealer examination which reported limited development and use of the trusted contact forms.) The Project Group recognized, however, that firms were now under an obligation per amended FINRA Rule 4512 (Customer Account Information) to make reasonable efforts to obtain the name of, and contact information for, a trusted contact person for a customer’s account. Further, firms must also comply with newly adopted FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on the disbursement of funds or securities from accounts where there is a reasonable belief of financial exploitation. 

As result of this study, the NASAA Project Group  encourages broker-dealers to: 1) adopt consistent policies that provide clear definitions of basic terms like “seniors” and “vulnerable adults;” 2) create dedicated resources and teams that are specifically responsible for protocols and procedures on senior related issues; and 3) provide better and more consistent guidance around communication and account documentation, heightened suitability review, and use of trusted contacted forms for seniors.

Other NASAA Resources:

NASAA offers industry members other resources that may be of interest. In 2015, NASAA created a website, ServeOurSeniors.Org, dedicated to providing guidance and resources to the financial service industry, legislators and regulators and senior investors. In 2016, NASAA created model legislation, the Model Act to Protect Vulnerable Adults from Financial Exploitation, which has now been passed, or been introduced in some form, in almost 20 states. Further, NASAA has provided support and training for the federal effort, the Senior$afe Act.


What do you think? Follow us on LinkedIn or Twitter to join the conversation!


Get Bates Group News and Alerts in your Inbox

Sign Up Now

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group