Older investors' complaints deserve -- and receive -- special scrutiny from regulators
Examiners give seniors the benefit of the doubt in a complaint, making it imperative to keep meticulous records focusing on not just the 'what' but the 'why' of investment decisions
One of the most familiar quotes from George Orwell’s classic fable “Animal Farm” is “All animals are equal, but some animals are more equal than others.”
To paraphrase Orwell, all complaints are equal but some complaints are more equal than others — namely complaints by elderly investors against registered investment advisers and other financial professionals.
While securities regulators’ mission is to protect all investors, elderly investors deserve and receive special attention because they are often past their peak earning years and may never recover financially if they are exploited. See: SEC’s heightened interest in the older set means advisors should pay heed.
(Just so you’ll know, I’m not complaining about the efforts to protect folks my age. As a guy who is offered senior discounts without asking for them and is told there is no need to prove my age with a driver’s license, I’m glad people are looking out for me as I sit on the cusp of geezerdom.)
Tips for seniors
In a speech to the North American Securities Administrators Association Inc. on May 7, Luis A. Aguilar, a member of the Securities and Exchange Commission, expressed concern over financial exploitation of the elderly. He said that he was interested in partnering with NASAA to develop ways to combat this problem. The SEC and NASAA already publish a wealth of materials on their websites to educate older investors.
It is not just securities regulators who are concerned about financial exploitation of the elderly. The Justice Department’s Financial Crimes Enforcement Network has advised financial institutions, such as broker-dealers, to file Suspicious Activities Reports if they suspect exploitation of the elderly.
When securities regulators publish warnings about particular types of risks facing investors, it usually means that compliance examinations will also concentrate on those areas. See: The SEC will often 'tell’ advisors what compliance issues deserve attention.
During routine compliance examinations of RIAs, examiners may take a closer look at older clients’ accounts. Furthermore, if an examination is prompted by a complaint from an older investor, you can bet that examiners will be spending a great deal of time reviewing the accounts of older clients and investigating whether their portfolios contain suitable investments. Examiners may also look at whether an RIA has policies and procedures in place to protect older investors, especially those who may be suffering from diminished capacity.
Effective policies and procedures may require heightened supervision of older clients’ accounts, including more-intense supervisory reviews. An RIA may need to implement a process requiring additional scrutiny before certain products are sold to elderly clients, such as variable and equity indexed annuities. In addition, policies and procedures might establish how investment adviser representatives should conduct a suitability analysis and document their process.
Benefit of the doubt
Policies and procedures can also protect elderly clients who exhibit signs of a cognitive impairment. An RIA’s policies and procedures may require IARs to alert the firm’s legal and compliance staff for further assistance. RIAs can also educate their employees on how to identify the warning signs that a client may not be competent to make investment decisions. See: How suitable are your investment strategies? The SEC cares, a lot..
Having policies and procedures in place to protect older investors can also provide protection for an advisory firm if a complaint is filed. Assuming those policies and procedures were complied with, an RIA can demonstrate to securities regulators that it took steps to prevent harm to such investors.
Whether an older investor’s account is being reviewed by an examiner who is conducting a compliance review or an arbitrator evaluating a complaint, such clients are likely to get the benefit of the doubt. An unhappy outcome is even more likely if the advisor’s management of an older client’s portfolio is suspect or the RIA has failed to maintain books and records showing that the firm acted in the person’s best interest. It is imperative that RIAs and IARs document why they made investment decisions, even if elderly clients are sophisticated investors and are sharper than the advisors giving them advice. See: When it comes to senior investors, regulators are breathing down your shoulder.
_Les Abromovitz, an attorney, can be reached at National Compliance Services, Inc. by calling 561-330-7645, Ext. 213, or by e-mailing him at firstname.lastname@example.org. Les is the author of “The Investment Advisor’s Compliance Guide” which was published in March 2012 by the National Underwriter Co., a division of Summit Business Media. The book is available at https://www.nationalunderwriter.com/the-investment-advisor-s-compliance-guide-2.html.
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