WASHINGTON, D.C. (July 21, 2020)—The North American Securities Administrators Association (NASAA) today released a report examining issues related to diminished capacity and cognitive impairment that may affect financial professionals.
The report was based on a series of discussions between state and provincial securities regulators with broker-dealers, investment advisers, and compliance consultants to understand how the industry handles issues related to diminished capacity and cognitive impairment of financial professionals.
“Discussions with industry members and other regulators clearly indicate that firms are encountering financial professionals with diminished capacity or cognitive issues that stem from a variety of factors, including an aging workforce,” said Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities.
Financial professionals experiencing diminished capacity raise complex issues regarding providing effective service to the client and compliance with their duties under the securities laws, the report said, including those related to standards of conduct, supervision, books and records, continuing education and fraud.
The methods and resources used to address sensitive situations where financial professionals exhibited signs of cognitive impairment varied by firm size and structure. The report summarizes how firms are managing these situations through communication, education, and succession planning.
The report identified several areas for firms to consider, including whether appropriate staff are trained to recognize the red flags of diminished capacity and cognitive impairment. The report also suggested firms encourage or even require all financial professionals to establish a succession plan regardless of age. Those interviewed throughout the industry believe there are roles for regulators to play in identifying the problem and setting guidelines and goals on how to address it.
“Addressing financial professionals with cognitive impairment or diminished capacity requires sensitivity and respectfulness. Each situation will present differently and firms will have varying resources to address these concerns,” notes the report, which was prepared by a working group chaired by Claire McHenry, Deputy Director of the Nebraska Bureau of Securities, within NASAA’s Board-level Committee on Senior Issues and Diminished Capacity, chaired by Deborah Gillis of the New Brunswick Financial & Consumer Services Commission.