Protecting Senior Investors from Financial Exploitation

By Patricia Uceda, Spring 2015 Graduate Research Assistant

SEC’s first official Investor Advocate Rick A. Fleming recently gave a speech at the American Retirement Initiative Winter Summit in Washington D.C. regarding senior investors and how they can be better protected from financial exploitation.

About 10,000 Baby Boomers are expected to celebrate their 65th birthday every day from now until 2030. The fastest growing segment of America’s population consists of those 85 and older, and they are projected to grow to 19 million by 2050. With increased age may come diminished capacity, and Alzheimer’s rates are on the rise. This cognitive impairment can reduce the capacity to make financial decisions and drastically increase the risk of financial exploitation.

The SEC believes that financial services professionals are in particularly good positions to protect clients from financial exploitation as they face diminished capacity. This is due to the fact that they are on the front lines and usually have known their clients for years, thus they may be the first to recognize red flags of financial exploitation. Unfortunately, they are often constrained in their ability to protect clients because they are required to comply with requests to withdraw or transfer assets, as well as being expected to keep everything confidential.

As a result of this, some financial industry representatives have begun seeking reforms that would allow financial services professionals to “pause” transactions in which they suspect financial abuse. Washington was one of the first states to adopt a law in 2010 that allowed a financial institution to refuse a transaction whenever the institution “reasonably believed that financial exploitation of a vulnerable adult may have occurred or is being attempted.” Currently all state securities regulators in NASAA are also considering reforms such as this.

Fleming recommends that the SEC should also considering adopting a similar measure at the federal level, although there are several questions to consider first. These questions include how long the “pause” should last, who would have the authority to decide whether to delay a transaction, and what the legal threshold should be for allowing a firm to refuse to follow instructions, among others. If this practice were adopted by the SEC, it could go a long way in helping to protect senior investors from financial exploitation.