Protecting Seniors from Financial Scams

NAIFA is working with lawmakers to clarify your obligations as you protect your senior clients from financial exploitation.

Federal and state legislators are working hard to pass laws that will clarify your obligations as an advisor when determining the steps to take to protect your senior clients from financial exploitation.

In June, the U.S. House passed its version of the Senior$afe Act of 2016. The bill was introduced as a companion bill to S. 2216. It is an attempt to increase protections for senior Americans susceptible to financial and investment fraud.

It provides that a supervisor, compliance officer or legal advisor for a covered financial institution who has received training regarding the identification and reporting of the suspected exploitation of a senior citizen (at least 65 years old) shall not be liable for disclosing such exploitation to a covered agency if such individual made the disclosure in good faith and with reasonable care; and a covered financial institution shall not be liable for such a disclosure by such an individual if such individual was employed by the institution at the time of the disclosure and the institution had provided such training.

NAIFA’s amendment

The bill sponsors worked extensively with NAIFA on an amendment to the bill that would extend liability protection to the registered representatives of broker-dealers. The NAIFA-backed amendment was accepted by a vote of the Financial Services Committee and helped ensure that support of the bill was unanimous.

NAIFA Government Relations is now working with Senate sponsors to further amend the language contained in the Senate version to fully include registered representatives and insurance producers, ensuring that all NAIFA members who work directly with clients are covered by the provisions of the Senior$afe Act.

Along with Congress, FINRA is proposing a regulation to address this issue of senior protection as well. FINRA issued Regulatory Notice 15-37 to solicit feedback on proposed rules addressing the financial exploitation of seniors and other vulnerable adults. One proposed new rule would permit firms to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation and to notify a designated trusted contact of the temporary hold.

What states are doing

At the state level, a number of states have considered or enacted laws intended to protect seniors from financial exploitation. The state proposals call for financial advisors and their firms to report suspected financial exploitation of one of their senior clients to state authorities who can then conduct an investigation. The state laws also allow the firm to place a temporary hold, usually up to 10 business days, on the client’s requested transaction if attempted fraud is suspected.

NAIFA’s position

While NAIFA does not oppose these bills, the association’s position is that any senior financial protection bill should incorporate the following:

• Include a voluntary, not mandatory, reporting process.

• State that advisors report suspected fraud of a senior client to their firms, rather than go directly to authorities.

• Ensure that financial advisors are protected from liability if they report a senior client’s financial information to third parties in an effort to comply with the law and protect their client from financial ruin.

NAIFA has been proactive in lobbying on these bills where they are introduced in state legislatures. This year, NAIFA-Louisiana and NAIFA-Colorado successfully lobbied to ensure that senior protection bills have a voluntary reporting process and shield advisors from legal liability for complying with those laws. And NAIFA-Oklahoma was able to persuade the State Securities Commissioner to withdraw a proposed senior protection regulation to address concerns raised by financial advisors.

Although Alabama enacted a senior protection law this session that requires mandatory reporting of suspected senior financial exploitation, NAIFA-Alabama secured a commitment from the State Securities Commissioner that concerns raised by advisors will be addressed in regulations to carry out the new state law. Vermont and Indiana passed similar laws this year. We expect that more states will consider enacting senior protection laws of this nature starting early next year.

NAIFA will continue to work to amend any legislative or regulatory senior financial protection proposal to ensure that the association’s views are incorporated and, importantly, that regulators and the industry can take steps to protect vulnerable seniors from financial scams.

Michael Hedge is director of government relations at NAIFA. Contact him at mhedge@naifa.org. Steve Kline is director of government relations at NAIFA. Contact him at sklein@naifa.org.

By Toni Harris Taylor