Remarks of NASAA President Judith Shaw at the ARM 2016 Annual Educational Conference

March 8, 2016
Association of Registration Management Annual Educational Conference
Amelia Island, Florida

Good morning. Thank you, Michele, for that kind introduction and for the opportunity to speak to all of you today. I had the honor of seeing Michele present at a NASAA training event perhaps two years ago now and can honestly say until that day, I did not fully appreciate the challenges each of you face on a daily basis. We are all fortunate that ARM and NASAA’s CRD and IARD experts have worked so closely together for so many years. In fact, I think it is fair to say that we share a common goal – the registration of honest, hard-working financial professionals who serve their clients well. I like to think that this long-standing collaboration serves that important goal.

I know that later this morning we will all have the benefit of hearing from a state issues panel. We look forward to hearing from Melanie Lubin from Maryland, Pam Epting from Florida, Andrew Hartnett from Missouri, and Valerie Mirko from NASAA.

We at NASAA appreciate all of the work you and your colleagues do to help us manage the registration process. It is important work and you plan an important gate keeping role. Today’s financial professionals find themselves on the front lines riding the waves of the markets and being ever watchful for changes in the financial and personal behavior of their clients.

That is why for my remarks today I want to share with you the work we have been doing in NASAA to address the issue of financial exploitation of the elderly and vulnerable adults.

Prevention of Financial Abuse of the Elderly

One of our highest priorities at NASAA is to develop new tools and promote new ways of thinking to combat financial exploitation of the elderly and vulnerable adults. It is not a new concern for us. Many of you know that in 2008 NASAA promulgate a rule on the use of misleading designations or titles meant to convey some special expertise on issues faced by seniors. And in 2003 NASAA launched its web-based Senior Investor Resource Center.

NASAA’s members have worked to combat abusive sales tactics used in “free lunch seminars” or, as we have seen in Maine, “free surf and turf dinner seminars,” and our members regularly pursue enforcement actions against individuals that have violated laws and inflicted financial harm on the elderly. This is an issue I am sure everyone in this room feels very strongly about.

I am also sure that the fact we are sitting in Florida talking about seniors is not lost on you. However, elder financial abuse is not an issue that is unique to the Sunshine State.

As I recounted in testimony before the Senate Special Committee on Aging, Maine has the oldest median age in the country with over 17% of its population age 65 and older. It is estimated by the Census Bureau that by 2030, more than 25% of Maine’s population will fall in that category. Indeed, at this very moment more than 25% of the people in my hometown are 65 or older and live alone. And a recent study conducted by the Maine Department of Health and Human Services in conjunction with the Muskie School of Public Policy determined that 1 in 3 Mainers with dementia live alone.

Based on information from the 2010 Investor Protection Trust Elder Fraud Survey, we know that one out of every 5 citizens over the age of 65 has been victimized by a financial fraud. I know you are as appalled by this number as I am. These statistics are not lost on the scam artists.

To further explore ways that we as state regulators can combat this growing problem NASAA formed a Board-level committee in 2014 with representatives from all of the areas we regulate – including agent and representative registration.

With input from the Council, the NASAA Committee has been hard at work over the last 18 months. Under the leadership of the Committee, NASAA launched the “ServeOurSeniors” website in December 2015.

ServeOurSeniors is a resource intensive website providing information for policymakers, industry, senior investors and those best positioned to provide for their care and financial security. I would encourage all of you to check it out. One of my favorite features is an interactive map of North America listing contact information for your local state securities regulators, Adult Protective Services, as well as other valuable contact information for government and community resources.

In addition to the website, the Committee also focused on developing a model act designed to provide new tools for regulators and industry to address and prevent elder financial exploitation.

Approved by the NASAA membership in January 2016, and borrowing from laws already on the books in Missouri, Delaware and Washington, we believe this model act will promote reporting and strengthen the network designed to protect the elderly and vulnerable adults.

There are several key components of the act:

  • First, the model act applies to individuals 65 years of age and older or those that would be entitled to the services of a state’s Adult Protective Services office.
  • Because we believe that this issue is one that should be addressed on many different fronts, the model contains a provision mandating reporting of suspected financial exploitation to state securities regulators and local APS agencies by the broker-dealer agent, the investment adviser rep, or person serving in a supervisory capacity.
  • In instances where there is a reasonable belief of exploitation a firm can institute an initial hold on the disbursement for up to 15 business days, which can be extended up to an additional 10 business days at the request of a regulator.
    o The model allows for the notification to previously designated third-parties when financial exploitation is suspected.
  • Immunity from civil or administrative liability is provided for governmental disclosures, third party disclosures, and delaying disbursements when those actions are taken in compliance with the statute.
  • Finally, the model act mandates the sharing of financial records with state APS offices.

As we were working on finalizing the model act, FINRA issued a proposal in the form of Regulatory Notice 15-37 that also allows for firms to place a hold on disbursements where there is a reasonable belief of financial exploitation.

I think it is fair to say that we see the value in trying to more closely align our work on this important, but complicated issue. That said, FINRA and the states serve different constituencies and work under different laws so it is inevitable that there will be some differences in our approach.

We believe that the NASAA model act strengthens a much needed safety net for seniors and vulnerable adults by providing firms with tools and resources to identify, report and fight financial exploitation while at the same time respecting the dignity and independence of senior investors by facilitating reporting to regulators and Adult Protective Services; encouraging firms to develop financial advance directives for execution by clients; permitting the delay in disbursement of funds when financial exploitation is suspected; and providing immunity from administrative and civil liability for taking actions permitted under the model.

The work of the Senior Issues Committee continues. After conferring with a broad range of experts including members of the industry, the Committee is compiling information on possible best practices for consideration in addressing this issue. It is challenging for a firm to adopt an approach that finds the right balance between respecting the independence of an older client or vulnerable adult while acknowledging things such as the reputational risk of the firm. We believe that the best practices information that is developed will include suggestions that can address these competing interests in a meaningful and reasonable way.

One important consideration is training. Recognizing the signs of cognitive decline and financial exploitation is critical if we are to become better at protecting elderly and vulnerable investors. The financial professionals that you help to on board are uniquely positioned to identify red flags which include:

  • The investor appears unable to process simple concepts. This may include a decline in the ability to do simple math problems – one of the first skills to decline.
  • The investor makes decisions that are inconsistent with his or her current long term goals or commitments.
  • The investor’s behavior is erratic.
  • Memory lapses result in the failure to fulfill financial obligations such as paying bills, or even paying the same bill twice.
  • The investor appears to be disoriented in their surroundings or social settings.
  • The investor appears uncharacteristically unkempt or forgetful.
  • The investor begins appearing in the advisor’s office with new or unknown persons.

I recognize that these are not issues you and your staff may directly deal with at your firms, but I share these red flags because it is so important for all of us to understand them. Furthermore, insofar as you may be involved in developing and administering some larger firm-wide training programs for representatives, I encourage you to work with your colleagues in compliance to work towards a holistic approach at your firms, with a strong collaborative link with your state securities regulators as well as your other regulators, Adult Protective Services, and identified community resources. We are all in this together.

The NASAA model act takes a holistic approach to this issue and that is very much in line with our approach in Maine. We call it the “no wrong door” approach and we use that as a guiding principle of a training program developed by the Maine Council for Elder Abuse Prevention.

Maine’s Senior$afe program was developed two years ago in conjunction with our banks and credit unions, among others. To date, we have trained more than 300 bank and credit union tellers and supervisors to identify red flags of elder financial exploitation and to make appropriate reports to law enforcement, Adult Protective Services or the Office of Securities. Since its inception, my office has received over 50 referrals some of which have been referred further to Adult Protective Services or other governmental agencies and some of which have benefited from referrals to community based resources such as Legal Services for the Elderly or a local Area Agency on Aging.

It is no exaggeration to say that this program not only has kept funds in the hands of customers but has also saved lives. In one case, a credit union teller noticed a customer, who had recently been accompanied by an unknown person, was no longer making her usual visit to the branch. Upon calling the customer’s home, the teller was told that the customer no longer lived there. A report to Adult Protective Services resulted in a welfare check being conducted. The customer was found bedridden and within hours of death.

More recently, an attorney in Maine was sentenced to 2 ½ years in prison for exploiting two elderly clients. He placed one client in a nursing home for what was to be a brief recovery period but ended up being four years. Attorney Dawson stole nearly half a million dollars from the two elderly clients. The theft was uncovered when a bank teller noticed Attorney Dawson was writing large checks to himself on at least a weekly basis from the account of one of the clients.

These are but two examples of ways in which training, identifying, and reporting can serve to address the growing problem of elder financial exploitation. We can all work together to provide a solution. We can make a difference. It starts with me and it starts with you.

Thank you and enjoy your conference.

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