Government agencies and regulators are being forced to address the financial exploitation of older adults, as recent studies estimate that between $2.9-$36.5 billion in wealth is lost annually. While older adults are not the only victims of financial fraud, they possess a number of characteristics that make them particularly vulnerable. Much of the literature focuses on cognitive impairment, which is certainly closely associated with susceptibility to financial scams and exploitation. However, other factors may play an important role. Older adults are, as a group, wealthier than their younger counterparts, making them more attractive targets. Seniors are also disproportionately affected by depressed interest rates payable on government and corporate bonds and even bank certificates of deposit, and therefore many are drawn to the promise of quick, high yield investments. Also, they are more likely to be socially isolated, lonely, and dependent on others for care. Perhaps most troubling is that research has shown that more subtle changes in aging, such as loss of episodic memory, slowed processing speed, impaired judgment, and executive function unrelated to (or at least substantially predating) diagnosed cognitive impairment, are also predictors of vulnerability to exploitation.
Recognition of this reality has led the financial industry to undertake major initiatives designed to help protect seniors from financial abuse. One example is the North American Securities Administrators Association’s (“NASAA”) development of the Elder Investment Fraud and Financial Exploitation Prevention Program, which led to the development of a pocket guide for health care professionals to help them identify and discuss financial vulnerability with older adults.
Now the federal government, through the U.S. Securities and Exchange Commission (“SEC”) in conjunction with both NASAA and the self-regulatory organization that oversees broker/dealers and other securities industry professionals, the Financial Industry Regulatory Authority (“FINRA”), released the Senior Safe Act Fact Sheet (the “Fact Sheets”) in May.
The Senior Safe Act (the “Act”) was in fact Section 303 of the Economic Growth, Regulatory Relief and Consumer Protection Act, which was signed into law on May 24, 2018. The reference above to state initiatives is perhaps particularly apt, as the Fact Sheet notes that the “inspiration” for the Act was Maine’s Senior Safe training program. The 2014 initiative by the Maine Council on Elder Abuse Prevention is designed to train financial professionals to detect and report suspected financial abuse of senior citizens. The Senior Safe Act applies to “covered financial institutions,” which include broker/dealers, investment advisers, and transfer agents, as well as their eligible employees, affiliated persons, and associated persons. The Act provides statutory protection against liability in any civil or administrative proceeding for reporting any case of potential exploitation of a “senior citizen” to the appropriate “covered agency.”
The Act defines a senior citizen as a person not younger than 65 years of age, and “covered agency” includes state-financed regulators (state securities administrator, banking regulator or insurance regulator) or a law enforcement authority, a state or local adult protective services agency, the SEC, FINRA, a federal law enforcement agency, or any federal agency represented on the Financial Institutions Examination Council.
Note that the Act does not provide immunity against criminal proceedings (that might be asserted in particular factual situations). Further, the protection provided by the Act is conditioned on two separate requirements. First, the “covered financial institution” employees must be: i) eligible, and ii) trained. “Eligible employees” include supervisors, or in a compliance or legal function of the covered institution AND registered representatives, investment adviser representatives or insurance producers affiliated or associated with the covered institution. The Fact Sheet does not address whether solicitors are eligible, although some states require a solicitor to be registered as an investment adviser, which may resolve that issue even though the solicitor is not an employee.
Eligible employees must also be trained. That training must teach the employee how to identify and report any suspected exploitation of a senior citizen, but must also emphasize the need to protect the privacy and to respect the integrity of each customer of the institution. And finally, that training must “be appropriate to the job responsibilities” of the eligible employee.
An “eligible employee” is protected if he or she has received the requisite training and makes the disclosure to a covered agency in good faith and with reasonable care. The “covered financial institution,” however, receives the protection of the Act only if all “eligible employees” have received the requisite training. This alone is a reason to maintain a robust and continuous training program.
The “covered financial institution” must maintain records of who attended both the training sessions and the contents of the training. Those records must be available to any “covered agency” with examination authority over the “covered financial institution.” The Fact Sheet states that the institution need not maintain such records with respect to any individual who is no longer employed, affiliated, or associated with that institution, but risk management principles and the vagaries of history suggest that such records be maintained for some period (perhaps two years) after the end of employment, affiliation, or association.
The eligible employee must report the suspected exploitation to a covered agency in “good faith” and “with reasonable care.” One can read in the provisions in the Fact Sheet a desire simultaneously to encourage reporting of suspected financial abuse of senior citizens and to caution against violations of reasonably expected financial privacy, akin to some of the Title V provisions in Gramm Leach Bliley.
The Fact Sheet reveals the difficult balance that is inherent in all such fraud prevention programs: protecting the privacy and autonomy of the client while trying to ensure they do not fall victim to predators. While older adults are disproportionately impacted by financial abuse, the fact that the program focuses on seniors specifically raises philosophical and ethical questions. Financial institutions must balance the individual’s right to self-determination with the realization that, as previously noted, seniors are often vulnerable to financial exploitation even in the absence of dementia. However, it is unrealistic to expect financial institutions and their employees to make the difficult determination as to whether an individual understands the consequences of their decisions. Therefore, it seems appropriate for financial professionals to receive immunity for reporting in good faith to an appropriate agency who can further investigate and make such a determination. When combined with prior FINRA regulations that require advisors to request that clients appoint a trusted contact they can contact with concerns and the ability to place temporary holds when exploitation is expected, the Act will hopefully lead the financial community to take meaningful action without being overly paternalistic.
Written by Shana Siegel, Attorney at Law, one of the few Certified Elder Law Attorneys (CELA) in Northern New Jersey to be certified by the National Elder Law Foundation (NELF). Attorney Siegel focuses her practice on representing seniors, individuals with special needs and their families in connection with life care planning, estate planning, elder law and special needs law. Shana has been involved in health and long term care issues for over 25 years. Attorney Siegel and her firm are Featured in ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources to help families plan for and deal with the issues of Aging.