Ongoing support must be committed to
continuously enhance protection and fraud detection
Nov 14, 2019 @ 3:18 pm By Michelle
Oroschakoff 
In recent years, our industry has taken
enormous strides to prevent the financial exploitation of seniors. Regulators,
firms and financial advisers have united in their efforts to create, enhance
and utilize tools designed to protect senior investors. Recent actions by regulatory bodies, coupled with the
ongoing efforts by firms and advisers, have effected change by providing tools
and resources to help identify and resolve threats of fraud and exploitation.
The Model Act to Protect Vulnerable Adults
from Financial Exploitation, created by the North American Securities
Administrators Association and approved in January 2016, provides for mandatory
reporting to regulatory agencies and allows firms and advisers to enlist the
assistance of state securities regulators to review any red flags. The Model
Act has been enacted in 23 jurisdictions, with more considering legislation in
2020.
In 2017, the Financial Industry Regulatory
Authority Inc. enacted the following regulatory changes:
•
Rule 2165 allows for
temporary holds on disbursements of funds where exploitation is suspected,
empowering the industry to intervene to protect senior investors.
•
Amendments to existing
Rule 4512 require that firms make reasonable efforts to collect the name and
contact information for a trusted contact.
•
In addition, Finra's
Securities Helpline offers seniors direct access to assistance and provides
Finra the ability to notify firms, when appropriate, that their investor may be
at risk for financial exploitation or simply in need of assistance.
Yet despite these initiatives, adult
protection services confirmed 25,990 cases of elder abuse in 2017 across the 26 states that
submitted data. Neglect comprised the highest percentage across types of elder
abuse, followed by financial exploitation.
According to Suspicious Activity Reports, the
number of filings on elder financial exploitation quadrupled from 2013 to 2017,
with a total of $1.7 billion in suspicious activities reported.
Taking steps to prevent fraud
There's no end to the work that must be done
to prevent fraud, and the onus is on firms and regulators to commit ongoing
support to be able to continuously enhance the processes that protect
investors. Finra, for one, recognizes that, having recently announced the agency will undergo a retrospective review of its rules.
LPL advocates that NASAA also undertake a
retrospective review of the Model Act. State regulators and local authorities
are on the front line of dealing with fraud and exploitation and are often the
first place that investors or their families turn to for help.
The timing is opportune, given the ability to
coordinate efforts with Finra as well as the National Association of Insurance
Commissioners. By working collectively, the groups can benefit from shared
learnings to be able to further increase and enhance the tools available and find alignment around the most
important issues that need to be addressed today and over time.
Specifically, NASAA should consider the
following:
•
Allow firms to delay a
broader range of account transactions, beyond just disbursements, to be able to
reduce risk that may be less immediate but can have just as significant an
impact on investors. That includes buy/sell orders, which can have tax
implications that harm investors; change of address requests, a vital component
to account protection and fraud detection; and change of beneficiary and
account titling requests, which could alter financial distributions upon death.
•
Provide for more
efficient reporting, and act with urgency in doing so to make it possible for
the many agencies and firms focused on protecting the investor to implement
action more quickly and easily.
•
Work with the NAIC to
assist with adoption of a similar Model Act. NASAA and the NAIC partnered on
their Misleading Senior Designations Model Rule some years ago, proving we can
scale efforts by creating complementary model rules aimed at protecting seniors
from financial exploitation.
NASAA is a proven leader in protecting senior
investors and we urge it to continue its leadership by working with Finra, NAIC
and the industry to explore potential enhancements to existing rules. Doing so
now will allow those states that have not yet adopted the Model Act to benefit
from the experiences of the past several years before they enact their own
laws.
Michelle Oroschakoff is a managing director
and chief legal officer at LPL Financial.
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