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Bates Research  |  05-27-16

Industry, Regulators, Lawmakers Working to Strengthen Senior Financial Protections (Part 2 of 2)

Guest Post by Expert Geoff Winkler

Last week, we discussed various estimates of the financial impact of elder investor abuses and began examining what is being done to address this significant problem. We will pick up today at that same point.

What is being done to address the Problem?

Regulators, lawmakers and the financial industry have all recently turned their focus toward providing greater protections against senior financial abuse. As we discussed last September, FINRA has proposed a new rule, Regulatory Notice 15-37, which will require financial firms to make reasonable efforts to get the name and contact information of a trusted person that can be contacted in case the firm suspects fraud is occurring, and permits a firm to place a temporary hold on the disbursement of funds if there is a reasonable belief of financial exploitation.

During the comment phase, FINRA received numerous favorable comments from groups like NASAA, SIFMA, AARP and the National Association of Insurance and Financial Advisors(NAIFA).  The comment period for the proposed rule has closed, and the final rule is expected to be ready “in the near future,” according to David Sibears, FINRA’s Executive Vice President of Regulatory Operations.

NASAA, as we discussed last October, had proposed new protections in its Model Legislation or Regulation to Protect Vulnerable Adults from Financial Exploitation, which was adopted on January 22, 2016. Under the model legislation, financial firms would be granted immunity if they contact a trusted person or delay disbursement if financial exploitation or other abuse of an eligible adult is suspected. In addition, financial institutions will also be granted immunity for required disclosure to governmental parties if they suspect exploitation or abuse. Many states have already passed similar laws, including Maine, Washington, Delaware and Missouri, while other states have begun the process of reviewing the model legislation for adoption.

Finally, Congress has also weighed in with the introduction of Senate Bill 2216, the Senior$afe Act of 2015, which was introduced by Senator Susan Collins (R-Maine) and Senator Claire McCaskill (D-Missouri) on October 28, 2015. Much like the rule proposed by FINRA and model legislation adopted by NASAA, financial firms would not liable for disclosing suspected exploitation of a senior citizen. This proposed law, however, varies from the previous two examples as it is currently silent on disclosure to a trusted person and the ability of a financial firm to place a temporary hold on funds if they suspect exploitation.

The bill has received support from various industry groups, including a letter of support from SIFMA, which stated, “SIMFA would like to express our support for the Senior$afe Act of 2015 that would better protect firms and advisors who are looking out for the best interest of their elder clients by preventing financial exploitation.” SIMFA also noted the importance of this and similar efforts when it noted that, “by 2030, seniors aged 65+ will account for 18% of the nation’s population,” and Americans over the age of 50 currently account for 77% of the financial assets in this country. This bill is currently assigned to the Senate Banking, Housing and Urban Affairs Committee.

As Gary Sanders, Counsel and Vice President of Government Relations for NAIFA stated: “In light of the long-term relationships NAIFA members have with their clients and the detailed knowledge these advisors often have of their clients’ investments, accounts and overall financial situation, a person’s financial advisor is often on the front line of being able to identify indicators of attempted or ongoing financial exploitation of their clients.” However, until the rules are changed to provide immunity, “financial advisors and their firms often feel constrained in their ability to protect their clients” due to potential liability.