Regulators have stepped up efforts to protect seniors from being taken advantage of with respect to their investment portfolios.

“As clients age, most will experience at least some cognitive decline around finances and a number will develop dementia,” says Dr. Carolyn McClanahan, an MD and Certified Financial Planner and founder of Life Planning Partners.

The changes experienced by elderly clients can be gradual and difficult to spot, says McClanahan, which puts them at risk. “Aging clients lose money in a number of ways – their own mistakes, being easy targets of fraud, and being more vulnerable to exploitation by family members and friends.”

To protect elderly clients, regulators are putting rules and legislation in place, says McClanahan, noting developments at the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA), in particular.

CFPs, Personal Financial Planners (PFPs), and CPAs that advise clients should be aware of the risk of elder financial abuse, recognize the signs, and note the new regulations.

SEC, FINRA act
Action by FINRA was prompted, in part, by the more than 8,600 phone calls it received within two years of the launch of its Securities Helpline for Seniors.

The new rule and a companion amendment announced in FINRA regulatory notice 17-11 become effective on Feb. 5, 2018. They will:

• require brokers to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account, and
• permit brokers to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.

The target audience of “specified customers” includes:   

• persons age 65 and older, and
• persons age 18 and older who the broker reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

The Securities and Exchange Commission is also taking action, having announced earlier this year that it will be placing extra scrutiny on those who advise senior investors.

NASAA response
NASAA, an international organization whose membership consists of all 50 state securities regulators as well as Canada, Mexico, Puerto Rico, and the U.S. Virgin Islands, released a study last year which concluded, “As the U.S. population ages, the financial industry has recognized that a disproportionate amount of financial crime and abuse is perpetrated upon the elderly and other vulnerable adults.”

McClanahan notes that NASAA has created model legislation for states to require advisers to have processes in place to freeze transactions when there is a concern about fraud or abuse and obtain training to identify cognitive issues with aging.

“At the heart of this issue?” says McClanahan. “Advisers care about their clients and should learn how to address cognitive issues as a matter of best practice.”

Advisory vs. advice
Another important consideration for CFPs, PFPs, and CPAs is compensation for advisory services.  

In an article published earlier this year on CNBC.com, Jeff Magson, CRPC and executive vice president at 1st Global Research and Consulting, talked about the importance of fee diversification.

“Behavioral financial advice, risk-management strategies, estate planning and charitable giving advice are all critically important concerns of today’s individual investors,” said Magson. He noted the importance of the advisor’s expertise being applied on an ongoing basis to meet clients’ needs.

“Therefore, an advice-based fee model (financial planning and service for a fee) offered in conjunction with an (Assets Under Management) or commission-based model is the means by which to deliver it properly and profitably,” says Magson.

Learn more on Oct. 24
Learn more on Oct. 24 from McClanahan, Magson and other experts at the MACPA’s 32nd annual Personal Financial Planning Conference. Join us in-person at the Sheraton Baltimore North in Towson or via simulcast.

Additional resources:

• AICPA: Elder financial abuse: How CPAs can help
• SEC: Investor.gov/seniors
• FINRA: Broker check
• NASAA: ServeOurSeniors.org
• FINRA: Professional designations lookup (e.g., to look up information about CFP, PFP) (DISCLAIMER: FINRA does NOT approve or endorse any professional credential or designation.)