Some brokers have not taken steps to protect senior investors from abusive sales practices, according to preliminary results of coordinated exams in 20 states.
In 20% of 62 exams, the firm reviewed had not established written policies or procedures in four key areas: addressing the suitability of sales to senior investors, communicating with them, and responding to either suspected abuse or signs of faltering mental capability.
In the other 80% of exams, brokerages had written policies in at least one area. Only 39% had policies for all of them.
(More: House passes bill to protect advisers reporting elder financial abuse)
The findings, which were released Sunday at the North American Securities Administrators Association annual conference in Providence, R.I., gave state regulators reason for both hope and worry.
“The preliminary results suggest firms are taking this issue very seriously,” said Andrew Hartnett, Missouri securities commissioner and chair of the NASAA broker-dealer section. “But it's hard not to be alarmed by a statistic like 20% of exams indicating no policies or procedures related to senior investors.”
NASAA released Monday
a guide to help financial advisers develop practices for recognizing weakened mental states in clients and for reporting and combating abuse.
The
coordinated examination is another step state regulators have taken to emphasize senior financial exploitation. NASAA also has issued a
model rule that has been adopted by four states.
The 62 exams involved 39 unique firms, and some states did identify the firms that were reviewed. Most of the assessments were conducted at branch or non-branch offices rather than the broker's home office.
Brokers conducted training programs for working with senior clients in 62% of the exams. More than 72% of the exams showed that firms had written suitability procedures pertaining to elderly clients.
UNSUITABLE INVESTMENTS
But approximately 10% of the exams flagged potentially unsuitable recommendations to senior clients. The products most frequently involved were variable annuities. Other products that raised suitability concerns were leveraged and inverse exchange-traded funds. About 30% of suitability red flags involved equities.
State regulators are interested in whether training surrounding sales is making a difference throughout a brokerage.
“Is training working and filtered to branch offices?” said Brett O'Neil, an attorney in the Montana Securities Department.
SENIOR DESIGNATIONS
The exams also revealed that brokerages are lax in permitting the use of senior designations that purportedly show a financial adviser has expertise in senior investments.
About one-third of exams involved a firm that allows senior designations, but almost 48% of those firms did not maintain a list of approved credentials, and 25% of them didn't have procedures to approve the credentials.
“Firms allowing use of senior designations may need greater controls in this area,” said Pamela Epting, deputy commissioner of the Florida Office of Financial Regulation.
TRUSTED CONTACTS
Brokerages also lagged in identifying people connected to elderly clients who could be contacted in case the client demonstrated diminished mental capacity or there were signs of potential financial exploitation. About 39% of exams showed that the firm used a trusted contact form and less than 15% of elderly clients had completed such a form.
(More: Three states make elder-financial-abuse reporting mandatory)
“There seems to be great opportunity for the industry to improve this area of client communication,” Ms. Epting said.
The coordinated exams are ongoing, and it's unclear when a final report will be released.
