Why Join the Investor Advocacy Clinic?

By Michael Williford, Fall 2016 Student Intern
My experience in the Investor Advocacy Clinic has provided me the greatest joy when I get to interact with clients. The Clinic setting provides the unique opportunity to apply law school lessons to real-world legal issues. Interacting with the client reminds me that the practical experience students covet has consequences for regular citizens. Clients don’t turn to the IAC because everything has gone according to plan in their retirement investments; they turn to the Clinic because they’ve lost a portion of what they’ve worked hard to earn. It’s a pleasure to help them recoup some of those losses.

Apply for the Spring 2018 clinic class here.  Applications are due 9/27.

My Clinic Story

By Michael Williford, Fall 2016 Student Intern

As a second semester IAC intern, I returned to the Investor Advocacy Clinic with a better sense of the processes associated not only with FINA arbitration, but with managing clients and their expectations. As a result, I felt more comfortable about when and how to engage with clients, the potential pitfalls that can lurk in any case, and a generally better understanding of the nuances of how the law interacts with the real world.

Broadly speaking, practice is much different than any law school class. Of course, the statutory and case law research I was accustomed to is a part of any FINRA action, but the experience fundamentally changes when you are engaged in the process on behalf of a client who is counting on you, rather than simply executing on an exam for a grade. That new context is both rewarding and frightening, but it is one I would encourage all law students to experience during their time in law school.

So, what did we actually accomplish this semester? We have drafted several comment letters discussing the clinic’s views on proposed FINR rule changes. We have received responses from FINRA that will forever be a part of the public record. We saw the final resolution to a case I was fortunate enough to work on last semester. The outcome was positive and the client was grateful. That alone feels like a significant accomplishment—Clinic students engaged with a large corporation and the client walked away with money that was not otherwise recoverable.

My biggest accomplishment, however, is having taken a case from intake through to what will likely be the initialization of an arbitration action on the client’s behalf. Getting to know the client along the way and coming to understand his perspective gave me new insights into how investors understand their own retirement planning, how much they depend on brokers and investment advisers, and how they suffer when that trust is broken. It provides a motivation to produce good work that is altogether different than the desire for good grades or to land a particular job after graduation that are the normal hallmarks of the law school experience. And even though I won’t be around for the resolution of his case, I’m grateful to have met the client and I believe he will be in good hands next semester when his case really gets underway. I’m excited for the students who will be guiding him through the FINRA process.

Protecting Senior Investors: Regulatory Cooperation After Reports

By Michael Williford, Fall 2016 Student Intern

Over the course of the week, I’ve addressed four of the five major recommendations of NASAA’s practices and policies guide for combatting senior financial exploitation. In order to effectively take on financial scammers bent on exploiting seniors, NASAA’s final, and perhaps most important, recommendation to financial services firms includes a larger policy recommendation directed at communication between stakeholders in the financial services and regulatory enforcement agencies.

Because financial exploitation cuts across financial, law enforcement, and legal subject areas, cooperation between private sector financial services firms, the larger security industry regulatory authorities, and state law enforcement agencies is critical. Part of any cooperative scheme to reduce financial exploitation of seniors, according to NASAA, must include the sharing of information between private securities firms, adult protective services agencies (APS), and law enforcement.

Specifically, NASAA recommends that private firms, the entities best positioned to spot the red flags associated with financial exploitation, share access to financial records with state agencies so that perpetrators of this kind of fraud can be stopped. Frequently, NASAA says, private firms make the initial report to state agencies, but are not forthcoming when the state makes follow up requests for documents that are required to put together the case necessary to punish the bad actors. Because of the urgent nature of financial exploitation, clear channels of communication are necessary to effectively addressing exploitation in time to prevent the damage done to senior citizens when no one is looking out for their interests. To learn more about NASAA, its mission, and who to contact if you think a senior citizen may have been the victim of financial exploitation, visit http://www.nasaa.org/. To view the full report, click here.

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.

Protecting Senior Investors: Government and Third Party Reporting

By Michael Williford, Fall 2016 Student Intern

The NASAA guide also addresses some of the reporting requirements brokerages are subject to under various state laws. The guide explains that nearly all states have existing laws that include mandatory requirements when there is a suspicion of elder abuse. Some of those state laws include mandatory reporting requirements for elder exploitation that apply specifically to broker dealers or investment advisers, such as the Georgia law I discussed on Monday. Even if your state’s laws don’t include provisions designed specifically for investment professionals, laws designed to protect seniors may apply financial institutions as a whole or a brokerage’s employees, all of whom owe duties to their elderly clients. NASAA’s guide reminds us that the Model Act contains a mandatory obligation to report suspected exploitation where there is a reasonable belief an elderly investor is being financially exploited.

NASAA strongly encourages broker-dealers and investment advisers to adopt a voluntary reporting system even if they are not legally obligated to report suspected exploitation, because efficient reporting of exploitation is an important step in preventing it. NASAA specifically recommends that firms adopt written policies that would trigger an internal reporting requirement by broker-dealers or investment advisers, all while being mindful of the limitations that a state may impose on non-mandatory reporting, such as limitations on the scope of what information can be reported in the absence of a mandatory reporting requirement. Ultimately, however, NASAA strongly recommends that “firm’s reporting policies and procedures should outline the facts and circumstances that could result in the development of a reasonable belief that financial exploitation has occurred, is occurring, or may occur. The presence or observation of the red flags identified could form the basis for this belief, and might serve as a good starting point for such policies.” The guide also recommends that firms adopt clear escalation procedures when brokers or advisers spot the red flags that would trigger a firm’s internal reporting requirements.

You may be able to help an elderly loved one take greater control of their investment assets by helping them ask their broker about his or her firm’s response to the NASAA guide and by inquiring about what internal procedures are in place to help protect elderly investors, as well as what duties your loved one is owed by his or her broker.

Protecting Senior Investors: Detecting Senior Financial Exploitation

By Michael Williford, Fall 2016 Student Intern

NASAA recommends that brokerages develop policies and procedures designed to detect the financial exploitation of seniors, in addition to simply identifying older, potentially at-risk investors. Among the signs that should help brokers identify at risk investors who may be actively being exploited, NASAA recommends brokers watch for specific behaviors that indicate an elderly investor is being taken advantage of; these behaviors may trigger reporting obligations under existing state laws and the NASAA Model Act, where it has been adopted.

The signs of exploitation that NASAA identified in its discussions with securities industry experts, advocates for the elderly, and adult protective services professionals include unusual and repeated cash withdrawals or wire transfers—this could be a sign that an investor has fallen prey to boiler room type scam, which we’ve discussed before on this blog.  In addition, the sudden appearance of new and unknown friends, business associates, or even relatives should also be viewed with a skeptical eye. Nervousness or anxiety when conducting telephonic financial transactions or when visiting a financial services office are also suspicious behavior that may indicate a pattern of exploitation. Having little or no knowledge about their own financial status can be a sign that an elderly investor is no longer in control of his or her finances. If a person interferes when you try to speak to a loved one about your loved one’s financial status, it could be a sign that the individual is being exploited, as are sudden changes in important legal and financial documents such as powers of attorney, account beneficiaries, wills, or trusts; as are unexplained or unusual windfalls accompanied by a reluctance to discuss the details. We all have some sense of what normal financial activity looks like for the elderly investors in our lives. If you see a large departure from that behavior in combination with any or all of the factors outlined above, talk to your state’s human services department. There are almost always divisions of regulators devoted to helping protect seniors from the kind of exploitation at issue here.

Protecting Senior Investors: NASAA’s Response to Senior Investor Exploitation

By Michael Williford, Fall 2016 Student Intern

It shouldn’t come as any surprise that senior citizens have long been the target of investment scams. Everything from Medicare phishing scams to more traditional boiler room setups have targeted seniors in recent years. FINRA attempted to tackle the issue in September last year, with an initiative that would allow a firm to place a temporary hold on a disbursement of funds or securities to allow the firm time to notify the senior’s trusted contact when there is a reasonable belief the senior is being financially exploited.

The rise in the level of attention senior investors are receiving is largely a product of a demographic shift. According to the Pew Research Center, roughly 10,000 people turned sixty-five today in America. In fact, 10,000 baby boomers will reach the age of sixty-five every day for the next nineteen years. So the rise in the financial exploitation of senior citizens is built in part on the fact that are simply more victims now than there have been at any other time in American history.

So, what are lawmakers and regulators doing to stem the tide of older American victims?

The North American Securities Administrators Association (NASAA), an organization made of state securities regulators, last month released a guide designed to help broker-dealers and investment advisers implement policies that will better protect vulnerable seniors from the kind of exploitation that can wipe out a retirement account or the savings a retiree relies upon. The Guide focuses on five key concepts. This blog will focus on one each day this week. Let’s dive right in.

  1. How to Identify Vulnerable Individuals

Although the technical legal definition of an “eligible adult” may vary from state to state, NASAA recommends establishing the age of sixty-five as the threshold at which individuals should enjoy greater protection from age-related financial exploitation under state securities laws. Seven states “have adopted to statutes or regulations that set forth a legal framework applicable to broker-dealers and/or investment advisers—or other financial institutions—that are designed to assist” in fighting the financial exploitation of older adults. NASAA adopted a Model Act in January 2016 that it hopes will serve a s a guide for jurisdictions interested in constructing their own protective rules.

It’s worth noting that state rules designed to protect “eligible adults” often include people with certain mental or physical disabilities, in addition to adults sixty-five and over. For example, Georgia has a law, O.C.G.A. § 30-5-4, that makes it illegal to improperly use a disabled person’s resources, including financial resources. The same law also applies to persons sixty-five or older.

NASAA recommends, as part of broker training, that firms put in place policies to identify potentially vulnerable investors. Specifically, the recommendations include training to help spot red flags like a decline in a person’s ability to do simple math problems, an inability to understand important aspects of their investment account, or difficulty managing a simple checkbook. If the person’s behavior becomes erratic, including a decline in memory, disorientation with surroundings or social settings, or a decline in the person’s basic appearance, then brokers and family members should be wary of substantial changes in that person’s investments.  Other red flags include a sudden interest in get rich quick schemes, anxiety about personal finances, the failure to pay bills, or extreme actions that are inconsistent with the individual’s current long-term financial goals.

Although not all states have adopted NASAA’s Model Act, the number of states that have regulations in place to protect senior investors is growing rapidly. Don’t be afraid to contact your state’s Department of Human Services to find out what recourse you might have if you’ve been taken advantage of. Equally important, always do your research before you invest. Use BrokerCheck to learn about the person you’re considering doing business with. It’s free, along with other FINRA resources you can use to protect yourself before investing. Tomorrow, we’ll discuss some of the reporting requirements NASAA recommends.