WASHINGTON -- As waves of baby boomers head into retirement, state and federal regulators expect to take a hard look at the programs firms have in place to ensure they are selling elderly investors appropriate financial instruments and protecting them from unscrupulous third parties, according to regulators and compliance experts speaking at the Financial Services Institute's OneVoice conference.
Kevin Goodman, the national associate director of the SEC's broker-dealer examination program, said that the agency will give close scrutiny to the policies and practices firms have in place concerning marketing and selling to seniors. That means a review of the entire ecosystem, including the methods by which brokers coordinate with their affiliated advisors to confirm that elderly investors are receiving appropriate care.
"I think you can all expect that during a lot of your SEC broker-dealer exams we will place a special emphasis on your sales to seniors," Goodman said. "We'll ask questions like how do you train your registered representatives, your investment advisory representatives on senior issues? What kind of policies and procedures do you have that dictate what you can sell seniors and how you can sell it? And then how do you run exception reports and other surveillance to oversee what's being sold. If you can answer all of those questions, probably no worries."
The focus on senior investors dates at least to 2007, when FINRA issued a regulatory notice calling on firms to revisit and update their policies for protecting senior investors.
Though it's hardly a new issue, regulators have made it clear in recent years that they intend to scrutinize the policies that firms have in place to flag and address potential issues of abuse of senior investors.
"It's more relevant now in 2014 than probably it was in 2007," said Brandon Reif, a partner at the law firm Winget, Spadafora & Schwartzberg. "The reason why I say that is that in 2013 FINRA did a sweep of senior issues. And the SEC has done sweeps on senior issues. And if you took a look at the FINRA 2014 regulatory and examination priorities letter that lays out all the priorities for the year 2014, issues with seniors is on the top [of the] list of priorities with FINRA and also with the SEC, and a specific mention of issues of diminished capacity, which includes Alzheimer's and any other type of cognitive or physical impairments."
There are any number of red flags that could suggest suspicious activity around an elderly client's account, such as the withdrawal of large sums of money. Panelists stressed the importance of developing a training program for brokers and advisors, but also noted that flagging senior issues isn't the type of challenge that can be addressed with a checklist.
"It's such a spectrum of potential scenarios relating to this," said Donald Runkle, chief compliance officer with Raymond James Financial Services. "It's going be something where they're going to be looking for people to have very focused procedures."
From the broker vantage point, Runkle emphasized the importance of keeping open the lines of communications with the advisors who have a personal relationship with the clients, and are often in the best position to identify when an investor's faculties might be slipping and, when appropriate, alert family members who could intervene.
"Our first line of defense when it comes to these types of situations are our financial advisors who care about their clients, are protecting their clients," Runkle said.
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