Guidance for Working with Senior Investors

March 30, 2021    Compliance & Licensing

FINRA views protection of senior investors, as well as Baby Boomers who are at or approaching retirement, as a top priority. As people age, their ability to comprehend may weaken and their capacity to make decisions may diminish. As their capacities diminish, the opportunity for abuse may rise. Section 10.8(Accounts for Senior Investors) of ESI’s Written Supervisory Procedures addresses this priority. The purpose of this field notice is to provide you additional guidance when working with seniors and what to do if these issues arise.  

Recommendations to Senior Investors

An investor’s age, health, life stage, and liquidity are important factors in assessing the appropriateness of recommendations. At the time of sale, it helps to ask questions regarding the client’s future and to encourage a family member or trusted individual to be present during discussions.

For the purposes of this discussion, “senior” is generally defined as a natural person age 65 and older. However, these recommended actions could apply to any individual in whom you observe potential diminished capacity. Items to consider when making recommendations to seniors include:

  • Encourage them to provide a Trusted Contact. Refer to Field Notices 2018-05: Trusted Contact Person and 2018-11: Trusted Contact Person Update for specific details. Keep in mind that a Trusted Contact does not have to be an immediate family member of a client.
  • Indicate “retired” on new account paperwork to help in evaluating the client’s status as someone potentially taking withdrawals versus accumulating assets.
  • Certain products or strategies pose risks that may be unsuitable for many seniors. Clients with insufficient retirement savings may consider more risky investments to reach higher yields. However, taking undue risks may lead to financial disaster. It is important to provide a client with a fair and balanced picture of potential risk. Do not make recommendations that are inconsistent with a client’s financial needs.
  • Products that have withdrawal penalties or lack liquidity, products with long holding periods, products with features that may not provide their intended benefit to clients during their life expectancy, or overly complex products warrant careful consideration to ensure they are suitable for older clients. A client’s net worth alone does not determine whether a product is suitable. Review the product’s time horizon, liquidity, volatility, inflation risk, and withdrawal penalties as well.

Communicating with Senior Investors

More care in servicing may be necessary to ensure clients continue to understand what they purchased. Here are some suggestions when communicating with older clients:

  • Educate the client on identifying, organizing, and securely storing important documents.
  • Encourage a family member, their trusted contact or another trusted individual to be present at client meetings.
  • Ask if they would like duplicate copies of communications sent to a third party.  
  • Encourage them to consider granting a “durable” power of attorney to a trusted family member or individual.
  • Provide written summaries to document conversations.
  • If they seem to be having difficulty with comprehension, consider:
  • Asking simplified questions;
  • Repeating, paraphrasing, and summarizing;
  • Have them restate to assess understanding;
  • Schedule multiple, shorter appointments;
  • Conduct business in their residence to make them more relaxed and optimize decision-making.

Additional care should be given with respect to potential impairments that could impair a senior client’s decision-making ability.

  • Be observant to any cognitive issues or impairments;
  • Ensure the client can hear you clearly. Utilize a quiet space free of distractions and confirm the client’s ability to hear you; 
  • Be mindful of any visual impairments impacting the client. Confirm they can read all relevant marketing or documentation provided to them. 

Diminished Capacity

Often, you have relationships with clients for many years, and may be able to recognize atypical decision-making behaviors. You may notice gradual or sudden changes in normal functioning. No single indicator can determine if someone is suffering from diminished capacity. While you are not expected to be a medical or legal expert, it may be useful for you to understand some of the basic signs that experts look for when assessing a person’s decision-making capacity.

Some signs of diminished capacity:

  • Investor appears unable to process simple concepts;
  • Erratic behavior;
  • Difficulty comprehending or speaking;
  • Short-term memory loss – client asks you to do the same thing several times;
  • Disoriented – client is lost or unable to identify where they are or what day it is;
  • Emotional instability/inappropriateness – client may show a wide range of emotions from laughing to tears, or emotions are inconsistent with situation;
  • Delusions – client sees or perceives situations or circumstances that don’t exist;
  • Poor grooming/hygiene – A normally well-groomed individual looks disheveled.

If you notice a client displaying behaviors of possible diminished capacity, contact your supervisor immediately. You and your supervisor should work with ESI to evaluate and determine what steps to take.

Elder Abuse/Financial Exploitation

Below is a list of red flags which may indicate the existence of elder abuse or financial exploitation. Additional investigation and analysis may be necessary to determine if the activity is suspicious.

Client transactions:

  • Sudden inexplicable changes to transaction patterns;
    • Unexplained disbursements from account outside of the norm;
    • Uncharacteristic attempts to wire large sums of money;
    • Closing of accounts without regard to penalties.

Interactions with clients or caregivers:

  • A caregiver or other individual shows excessive interest in the client’s finances or assets, does not allow the client to speak for him/herself, or is reluctant to leave the client’s side during conversations;
    • Client shows an unusual degree of fear or submissiveness toward a caregiver;
    • Client lacks knowledge about their financial status or shows a sudden reluctance to discuss financial matters;
    • You are unable to speak directly to the client despite several attempts;
    • A new person is involved in the client’s financial affairs;
    • Client is suddenly isolated from friends/family or moves toward a new stranger; or
    • Power of Attorney is given to someone that appears inappropriate.

If you notice a client displaying behaviors of possible financial exploitation, contact your supervisor immediately. You and your supervisor should work with ESI to evaluate and determine what steps to take.

Escalation of Diminished Capacity or Financial Exploitation

If you escalate a possible diminished capacity or financial exploitation issue for your senior client, you and your supervisor should work with ESI Compliance, Operations, and senior management to collectively decide how to proceed.

ESI will initiate an internal review of the matter, and the following may be considered:

  • A conversation between you and the client with your supervisor present to assist in determining if there is an issue.
    • Thoroughly document client file with facts of conversations that took place;
    • Communication with a Trusted Contact listed on the account should occur only after speaking with your supervisor and receiving guidance from ESI to do so;
  • A temporary hold may be placed on a client’s account because of a reasonable suspicion. If a temporary hold is placed on an account, ESI will:
    • Provide notification of and reason for the hold no later than 2 business days after the date of the hold to the client, the Trusted Contact, and all parties authorized to transact business on the account (unless it is believed that they are involved in the financial exploitation);
    • End the hold no later than 15 business days after it was put in place;
    • If circumstances from the internal review confirm financial exploitation, the hold may be extended for an additional 10 days; and
    • Record the notification and actions taken in the client’s account record.
  • ESI Compliance will handle any necessary regulatory reporting.

Ignoring possible signs of diminished capacity or financial exploitation could put you, your client, and the Firm at risk. Client risks include actions that may be detrimental to their future and leave them vulnerable to financial exploitation. Risks to you and the Firm could include exposure to a complaint, hurting your relationship with the client, damaging your reputation, and legal issues.

Senior Designations

Using special designations indicating expertise when dealing with senior investors is permissible under the following requirements:

  • Prior Advertising Review Unit (“ARU”) approval for you to use any designation, including those pertaining to seniors;
  • The designation must be based on some criteria or qualification met;
  • You must be in good standing with the organization that confers the designation and current on any continuing education requirements;
  • It is not listed as an unapproved designation under Agent Designations in the Agent Portal. Certified Senior Advisor (“CSA”) is currently not approved for use;
  • Note that a title, such as Retirement Specialist, may be seen as a self-conferred Senior Designation by securities and insurance regulations.  Senior designation regulations caution the use of one or more words such as “senior,” “retirement,” “elder,” or like words combined with one or more words such as “certified,” “registered,” “chartered,” “advisor,” “specialist,” “consultant,” “planner,” or like words as they imply expertise with senior matters. 

Senior Seminars

Luncheon/dinner seminars are a common approach to reach investors and have become particularly popular in soliciting senior investors. There has been heightened scrutiny from regulators on these seminars for quite some time because of exaggerated or misleading materials available for use in the industry.

  • As with any public appearance, all materials associated with a luncheon/dinner seminar require prior approval from ARU before conducting;  
  • The products offered must be suitable for the target audience;
  • Materials provided must be balanced and may only include products or services suitable for senior investors.

Senior Investor Resources

There are several online resources available for investors and industry professionals to learn more about working with seniors. For more information on these resources, please visit the Red Flags document available on the Agent Portal, under ESI Compliance.

QUESTIONS

If you have any questions, contact your Branch Office Supervisor or you can reach ESI Compliance at 800-344-7437.

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