Imagine a broker driving an 83-year-old widow with Alzheimer's to local banks so that she can withdraw over $1 million from CDs. The broker then invests her money in annuities that will deny her penalty-free access for at least a decade, while generating more than $63,000 in commissions for himself.
Stories like this make me furious. This one riled the Massachusetts Securities Division into bringing suit against the broker, according to a November ThinkAdvisor.com article. It's one of the reasons the North American Securities Administrators Association launched a Committee on Senior Issues and Diminished Capacity last November.
How will this affect advisors' responsibility to protect their elder clients? To learn more, I contacted Lynne Egan, deputy securities administrator of Montana, who heads NASAA's new committee, and Wisconsin Securities Administrator Patricia Struck, the committee's vice chair.
"Most of our investigations into investment fraud involve older investors," Struck told me. A former NASAA president, she is also vice chair of the Senior Issues Committee. "We see so often that the older the investor, the more time they've had to accumulate wealth, which makes them a target for financial abuse."
"What fires me up is that it has taken these seniors a lifetime to build up a nest egg to take care of their financial needs for the rest of their lives," said Egan, who chairs the NASAA Investor Education Section. "When they become victimized, they no longer have the ability nor the time to replace what they've lost. So it's doubly tragic."
Egan and Struck replied to my specific questions by email. Their joint answers are edited here for space.
Olivia Mellan: What has your committee been working on since it was formed last August?
Egan & Struck: We have formed three working groups to tackle the myriad issues involving seniors and diminished capacity.
The Model Legislation Working Group is drafting proposed legislation to address issues faced by firms when there are senior or diminished-capacity issues.
The Best Practices Working Group is working closely with SIFMA, FSI, ICI and other industry groups to identify best practices for broker-dealer and investment advisor firms to detect and prevent the exploitation of seniors and individuals with diminished capacity.
Last, the Outreach Working Group is working with states, provinces, organizations and others to share the recommendations of the Best Practices and Model Legislation Working Groups. These three groups will make recommendations, and the committee will take them under advisement.
OM: Will the recommendations differ by industry group?
E&S: A primary goal of ours is to develop a uniform approach regarding the issues facing seniors and individuals with diminished capacity. To that end, the committee receives input from and works closely with a 16-member advisory council that includes members in the industry and enforcement, regulators, consumer groups, legal professionals, service organizations and medical professionals.
So our recommendations will likely not differ much by industry group. They will focus primarily on best practices, possible legislation and outreach to anyone who has contact with older persons.
