Advisors who work with broker-dealers can -- and should -- be doing much more to better protect seniors, the SEC and FINRA say in a new collaborative
With roughly 10,000 Americans set to turn 65 every day for the next 15 years, the two regulatory bodies "are concerned that some broker-dealers may be recommending riskier and possibly unsuitable securities to senior investors looking for higher returns and may be failing to adequately disclose the terms and risks of the securities they recommend."
After meeting with some of their state counterparts, 44 broker-dealers, the AARP and the Consumer Financial Protection Bureau, the SEC and FINRA have developed a list of "notable practices" of firms that have prepared and instituted new policies for serving seniors. The rules are essentially recommendations; an SEC spokesman clarified that "this report does not create new rules."
The practices -- covering marketing and communications, account documentation, defining "suitability," supervision, disclosures, customer complaints and senior designations -- include the following.
1. Disclose compensation -- and use plain English. Provide a detailed description of registered representatives' compensation -- "direct and indirect" -- for each product sold on your firm's website. Give clients a comprehensive disclosure form with simple, clear definitions for industry terms, the schedule of fees and expenses related to specific securities.
2. Centralize & automate supervision and compliance. Use a centralized supervisory review group to approve transactions and new accounts. And use automated systems and tools integrated into your firm's branch supervisory review system and compliance departments.
3. Clarify suitability for seniors. Adopt and maintain firm suitability guidelines and procedures addressing investment risks specific to seniors.
4. Assess product concentration. Establish strict firmwide product concentration guidelines for senior investors.
5. Log conversations. Require representatives to "memorialize in computer systems" conversations with their senior clients.
6. Document investment profiles. Use tools that require representatives to consider and document crucial investment profile information.
7. Have a sales policy. Develop policies around your firm's treatment of seniors, especially around sales of alternatives, REITs and options.
8. Get signed confirmation of disclosures. Require a customer signature on a disclosure form indicating that an older customer has received a prospectus when purchasing a new open-end mutual fund.
9. ID & flag seniors' complaints. When collecting customer complaints, as required by FINRA, know which ones are from seniors. Code them as "senior-related."
10. Match life changes to investment profiles. Use automated supervisory alerts to help ensure that updated investment profiles accurately reflect changes in clients' personal and financial circumstances.
11. Monitor mental capacity and elder abuse. Establish firm policies regarding implementation of FINRA's regulatory notice 07-43, which covers how firms should deal with clients with diminishing mental capacities or suspected incidents of elder abuse.
12. Train advisors on diminished mental capacity. Advisors should know how to identify and serve clients with diminished capacity. Require continuing education that covers the different stages of the diminishment of mental capacity and provides advisors with tools they can use to address each one.
13. Talk about tax impact of variable annuities. Require an explanation of the tax ramifications and alternative investment possibilities for all customers who purchase a variable annuity in an IRA.
14. Watch for seminar behavior. Distribute evaluation forms to clients who attend seminars soliciting feedback that supervisors can review later to identify any practices that might violate FINRA rules.
15. Bar (or regulate) senior designations. Prohibit outright the use of senior designations -- some of which imply a representative is a true specialist in serving senior clients but may be nothing more than a marketing tool -- or require supervisory approval before advisors can use such designations. Alternatively, require any such designations used by the firm's representatives come with a verified curriculum, continuing education and accreditation from an independent organization. Remember that, while the SEC and FINRA do not endorse any designations, some senior designations come with rigorous requirements, while others do not.
Read more:
