Protecting Senior Investors: Delaying Disbursements from Client Accounts

By Michael Williford, Fall 2016 Student Intern

There was a highly respected journalist in the 1920’s and 30’s by the name of H.L. Mencken.  Mr. Mencken attacked shams and con artists. One of his better known quotes goes something like this: “When somebody says it’s not about the money, it’s about the money.” And so it is with those that take financial advantage of the elderly. They may present as eager caretakers or they may be selling an “opportunity,” but it’s always about separating elderly, vulnerable investors from their hard-earned money. As a result, NASAA proposes that brokers implement mechanisms for delaying disbursements of senior citizen’s investment accounts where there is a reasonable basis to believe the investor has been financially exploited.

Make no mistake, such delays are an extreme proposal, but they are also a potentially powerful tool in short-circuiting the plans of con artists set on exploiting the elderly. NASAA recommends that firms institute mechanisms to permit delaying disbursements that could be the result of exploitation. Mechanisms that will allow a firm to delay a financial disbursement must meet certain criteria, however. The criteria are driven by state law and regulations that require an investigation to continue after a disbursement is delayed, and NASAA strongly recommends that firms develop internal policies and procedures that comply with the Model Act, so that any disbursement delays are above board and are the result of thorough and complete investigations into the circumstances surrounding the requested disbursement such that firms do not unnecessarily delay legitimate disbursements. Doing so could have negative consequences for the firm if the disbursement is a time sensitive, legitimate move of an elderly investor’s assets that is being done at the informed direction of the account holder. Understandably, firms want to avoid the legal problems that could result from the irresponsible delay of a legitimate disbursement, and NASAA agrees that a robust and thorough training program is required to avoid unnecessarily complicating the procedure, but NASAA has taken the step of recommending the tactic because the exploitation of senior investors is a serious problem with large financial consequences for a vulnerable segment of the population. Clear communication for the nature of any delay is required, and NASAA suggests the program be communicated up front to investors, and not in the fine print of account opening documents. Firms would do well to integrate NASAA’s recommendations as part of a broader effort to protect senior investors, but as always, transparency is key to maintaining clients’ trust.