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Senior Investors and Vulnerable Clients: Preventing and Reporting Financial Exploitation

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Senior Investors and Vulnerable Clients: Preventing and Reporting Financial Exploitation

Seniors and other vulnerable clients are susceptible to financial exploitation at alarming rates. Regulators estimate that billions of dollars are lost each year as a result of such exploitation, and given the aging of the investing population, that population's unique vulnerabilities, and their substantial wealth, stakeholders can expect this trend to continue to grow. This program will outline this problem and review best practices to protect senior and vulnerable clients from exploitation and fraud.

Presenters

Angela Turiano
Principal
Bressler, Amery & Ross, P.C.
Christy Boardman
Associate
Bressler, Amery & Ross, P.C.
Taylor Bandy
Associate
Bressler, Amery & Ross, P.C.

Transcript

Hello, and welcome to our presentation today. Entitled senior investors and vulnerable clients preventing and reporting financial exploitation. Thanks for joining us. Before we begin just some brief introductions. 

My name is Angela Turiano. I'm a principal at the law firm of Bressler, Amery and Ross, in the New York office. I focused my practice on the representation of broker dealers and individual financial representatives in customer complaint, sales practice litigation, regulatory matters and employment with me today, we have an assortment from across the board of our offices is Christy Boardman from Alabama and Taylor Bandy from Miami, Florida, who also focused their practice in a similar area as I do, and of utmost important today, we are all members of the Senior and Vulnerable Investors Group at Bressler. So in being members of this group, we all have attained a certain expertise in this area, which is why we are presenting on this topic today. 
So what are we gonna be talking about today? A brief overview of today's discussion. First we're gonna discuss what is senior vulnerable investor financial exploitation. Next, we're gonna talk about specific laws, rules, and regulations impacting broker dealers. And finally, we're gonna go over some best practices and practical tips to protect yourself from exposure from litigation and to prevent this type of fraud against vulnerable investors. And just as a little bit by way of background, there really was a focus on protection of senior investors starting in like 2013, FINRA and the SEC initiated an assessment of firms, policies and procedures regarding senior investor clients. And they looked around to see what different firms were doing to protect these investors. Since 2013, it's been an ongoing effort with increased focus on seniors, by FINRA state regulators, and even the federal government. And there's a reason for that, which we'll get into. 
So first let's start with what is senior vulnerable investor exploitation. As I stated, we're gonna be discussing in a little bit specific rules and regulations, but the FINRA rule that defines financial exploitation is a good one and it pretty much covers what it is. And it is for purposes of this rule, the term financial exploitation means the wrong fall or unauthorized taking withholding appropriation or use of a specified adults funds or securities. So that would be like your classic fraud, someone taking somebody's money. And I'll discuss the definition of specified adult in just one minute. And B of 2165, which is the rule of defining exploitation is any act or oral mission by a person, including through the use of power of attorney guardianship or any other authority regarding a specified adult to obtain control through deception, intimidation, or undue influence over the specified adult's money, assets or property or convert the specified adult's money, assets or property. So that would be like your typical abuse of power, somebody, a caretaker or somebody close to the victim that through abusing their influence, they commit a fraud. So that is how exploitation is defined by FINRA rules. And that's pretty much what we're gonna be talking about today. That type of exploitation. 
Now we talked about a specified adult in that definition. So who is protected, who are specified adults? Well, that depends on if you're talking about FINRA, federal law or state law. So specified adult under FINRA rule is somebody 65 or older, or any adult 18 or older who the firm reasonably believes has a mental or physical impairment that prevents them from protecting their own interests. So like a disabled individual that can't really protect themselves. The senior safe act, which is the federal law on this subject is also 65 or older. But then when we get into state law, there's a little bit of variation as you go state by state. But it's interesting that many states consider and specified adults to be anybody 60 or older, which is actually in the grand scheme of things pretty young. And I think there's many attorneys at this firm who would dispute the fact that they are among the specified adults who need protection, but nevertheless, many states do consider 60 be the age, the cutoff age. State laws also include disabled individuals, 18 or older who have a diminished physical or mental capacity. And again, it depends on the state. Well, what the specific definition is. Okay, I mentioned at the beginning that there's a reason why there's been a focus. And one of the reason why the focus has been continually getting more increased since 2013 is because of the senior population and the way it's been swelling and growing over the past years. 
And I'll just give you some quick stats, nearly one in five US residents will be 65 or older in 2030, baby boomers control over 70% of the nation's disposable income, which is crazy. And by 2029, baby boomers financial assets will peak at $26 trillion. And billions are lost each year to financial exploitation of seniors and vulnerable persons. And with that, I'm gonna turn it over to Christy to talk about the monies that are lost each year and how it's grown over the years. Christy.

Christy Boardman - Yes, as you can see from this chart since 1990, there's been a pretty drastic increase in occurrences of senior financial exploitation. And just since 2010, there's been an even more rapid increase in these occurrences as far as we know. From 2010, until 2030 in fact, the SEC is anticipating there will be overall an 81% increase of occurrences in senior financial exploitation. A lot of this has to do with the increased senior population as Angela was just speaking to, and some of this also has to do with the fact that regulators have been more focused on this issue. And because of that, there's been more reporting on this topic and more emphasis on senior financial exploitation. There's not a lot of great ways to track senior exploitation because victims are often so embarrassed and hesitant to report that they're victims of this type of exploitation or fraud. One way that we can track the occurrence of elder financial abuse is what's called suspicious activity report filings or a SAR. These are documents that a financial institution must file with a financial crimes enforcement network whenever there is a suspected case of fraud, SAR filings of suspected elder financial abuse have seen an uptick since 2012. You can imagine in 2013 when regulators begin focus on this issue more, that's when our filings begin to increase on this topic. However, the amount of filings has significantly increased in 2013, there were 499 and then by 2020, there were over 3,000. Part of this is due likely to the increased emphasis, but also part of it's probably due because there's been an increase in exploitation among this vulnerable population.

Angela Turiano - And I think that's interesting Christy to know which would, if you could track it, if they were able to track it, which would be the higher factor, whether is there more abuse out there or is it just increased detection? Because from 25 reportings in 2012 to 3015 and 2020 is just an insane differential.

Christy Boardman - Exactly. So the population was probably swelling that quickly in the senior space. So a lot of this has to do with the emphasis from regulators and new rules and regulations on this topic. Setting aside the high emotional cost of exploitation that the victims encounter, the financial loss of senior and vulnerable financial exploitation is staggering. It's estimated to be 36 and a half billion dollars annually. And again, that figure very likely is underestimated due to victims not reporting these crimes. No one is immune from the financial laws that comes from this exploitation. Scammers are very sophisticated and have come up with great ways to target senior investors or vulnerable investors to be hacking into emails. It could be coming up with various scams. You were talking before this call and we all have personal friends or stories of family members or other close relatives or friends that have been someone that has been targeted by scams and someone's sophistication, their education level. Even those aren't things that can prevent someone from becoming a victim to these scams. There have been multiple recent popular scams, and there's been an uptick in scams against senior and vulnerable investors due to the COVID-19 pandemic. One such example are romance scams or what's commonly called is catfishing. And another example are cryptocurrency investments scams, which we've seen a sharp increase since October of 2020. Angela or Taylor do you have any stories that you wanna share or any other examples?

Angela Turiano - Yes. Thanks Christy. I was gonna jump in. So first with regard to the romance scams, if anyone's seen that documentary called the "Tinder Swindler" while the victims in that documentary were not elderly, at least from what we saw in the program, that was the type of scam we were talking about, where you have an individual that kind of romances a person and makes them believe that they're in a relationship and that's how they get the money from them. I recommend that documentary 'cause it's interesting, but also it is indicative of the kind of thing we're talking about, but on a personal note, so my mother who is now about 88, about five years ago, she was contacted, and this happened twice. She got a phone call from a purported lawyer that said that her grandson and the scammer used the name of one of her grandchildren had been pulled over for DWI and needed money for bail. And that the child was afraid to call the parents. So that way she wired like $2,500 to the scammer and the first time she did it, she went to CVS to use the wiring service and the person behind the counter was kind enough to note the red flag and said don't do it. And basically got my mother to not send the money. And then a few months later, 'cause unfortunately my mother's memory was that at the time, it was going downhill happened again, she didn't remember. And the next time she actually did wire the money, same type of scam, used the actual name of her grandson and scammed my mother outta like 2,500, $3,000. So this stuff does happen and it's terrible. It's terrible generally. And when it happens to a family member, you really feel, you really get aggravated that there's these people out there. And we tried to get, we called the mayor. We told him this was happening and there was really nothing they could do about it. I don't know if Christy has, sorry, I don't know if Taylor has any personal stories.

Taylor Bandy - Well, a similar scam. They tried to perpetrate on my grandmother, but thankfully she didn't go along with it. But like Angela was saying, they call these individuals and they have their personal information because so much of this information you can locate on the web nowadays. And sometimes, I was reading there's a new hearing aid scam. Where they'll come to their house and say, you have diminished hearing loss and we will be able to make these custom fitted hearing aids for you in five, $10,000 just to try to get their money. So it's not even just by phone, by web, but it's also just showing up at these people's doorsteps where they take advantage of their laps in memory or just not being educated, that this is a current scam.

Angela Turiano - Yeah. And it's terrible and good job by your grandma in not getting in. Did she try to call the police and get them in trouble?

Taylor Bandy - I'm not sure knowing my grandma probably not, but she should have.

Angela Turiano - Exactly.

Christy Boardman - We talked about third party scams, but what's very sad about a lot of the senior and vulnerable financial exploitation we see is that a lot of this is actually family members or close caretakers. People like that, that are close to their victims, who are creating this exploitation and taking from this vulnerable population, about 90% of bad actors are close to their victims. As you can see from this chart, typically the statistics show that over 50% of mistreatment is the bad actors or family members, around 17% are friends and neighbors and around 15% are paid home care aids. This has create looking at and POAs is a hot topic and something for firms to look at closely because when someone has that authority, there's more potential for exploitation.

Angela Turiano - And here at Bressler we handle many, many cases involving a third party bad actor. And personally I've handled numerous cases. And every time I've handled a case, the third party has been someone that is known to the victim. And one comes to mind where the bad actor was one victim's brother-in-law and the other victim's personal injury lawyer. And he basically perpetrated the same scam on both individuals by referring them to the same financial advisor who was not involved in the scam, but referred the same financial advisor and convinced them both to invest in what ultimately was a fake annuity. And both of the victims were making odd withdrawals, like their increased withdrawals from their accounts in over a short period of time. And they were asked by the financial advisor team, both of them like, what are you doing? Why are you doing this? And both of the ladies lied to their financial advisor and gave them what seemed like legitimate reasons, why they were pulling the money out. But in reality, they were giving it to this bad actor. And at the end of the day, the bad actor was arrested and had not a dime to his name. So who got brought to? Who did they sue? They sued the financial firm. So these are the types of things that when you have these close family members or close actors, the people don't realize that they're being scammed. And at the end of the day, the exposure lies with the firm and not the bad actor, 'cause either they can't find them or they don't have any money. So just something to consider.

Christy Boardman - That's so true. And we've handled a case at Bressler too, where we saw that a POA was a primary caretaker who didn't seem to otherwise have any close relationships with the claimant in the matter raised some red flags, we started digging into the matter and found out that the claimant was actually deceased and was deceased before the claim was filed. So it appeared that the POA potentially the lawyer involved in the lawsuit were doing something that they clearly weren't authorized to do because the claimant couldn't have authorized such actions. So these are the types of red flags that hopefully lead to nothing if you're firm dealing with this issue, but it's something to look out for because there is so much room to have control over the situation. And then with that control to exploit a vulnerable investor.

Angela Turiano - A lot of bad people out there.

Christy Boardman - Exactly. Now I'm gonna turn it over to Taylor to discuss diminished capacity signs.

Taylor Bandy - So the reason that some of these vulnerable adults and seniors fall victim to financial exploitation is because they're suffering from diminished capacity. And it's really important to recognize some of the signs that indicate an individual is suffering from diminished capacity. Some of the things look out for are making decisions inconsistent with their history or state of goals. I had a case where a client had been a client of the firm for 24 years. He always had the same intentions for what he wanted to do with his money when he passed on, who he wanted to be beneficiaries, suddenly he comes in with a new power of attorney. A new trustee makes completely different beneficiary designations to that individual. And that set off red flags at the firm because this individual had always been so resistant to change. 
Another example is interesting, get rich quick schemes. I think sometimes you see on the internet and it'll be like invest $1000 in this cryptocurrency and I made $10,000 the next month. An ability to understand important or basic aspects of the account. So you have an individual who no longer understands the securities that he's holding. He gets confused about things that you guys had regularly discussed in the past. Common things, memory loss, disorientation, change in appearance, the individual is no longer taking care of themselves like they used to, the inability to pay bills or multiple checks bouncing at the same time and then repeated calls and or repeated resetting of online account passwords. However, I think I do that one all the time. So I think that one may made me to be paired with some of the other warning signs.

Angela Turiano - I was just thinking the same thing.

Christy Boardman - It's funny as we're going through this list, we have worked with a client before on an issue where the client, the customer himself had diminished capacity and no one disputed that, but because he had diminished capacity, he had an attorney serving as his POA and making all authorized decisions on his accounts. Our client started to notice some odd diminished capacity signs where the POA, the attorney would call multiple times and they'd have the same conversation over and over again. And just things have clearly indicate memory loss and disorientation. So the question became, what do you do when the POA of someone with diminished capacity himself probably has diminished capacity?

Angela Turiano - Wow. Yep. That's that's a question.

Chisty Boardman - Sure. Was.

Taylor Bandy - So in addition to diminished capacity, there are red flags to look out for that indicate an individual is suffering from possible exploitation. Like we discussed earlier, some dramatic unexplained shifts in their investment style, or all of a sudden they start taking these unusual withdrawals from their account, either inexplicably or their explanations don't make sense. Family members and new acquaintances who pay extraordinary interests in their assets or belonging. So like the case I was talking about where this long time client had never mentioned this individual and all of a sudden this individual became basically the sole beneficiary of his estate, gained all this power of attorney, trustee power over his estate, suspicious signatures on documents, and then abrupt changes in the trusted contact and in beneficiary.

Christy Boardman - I would just add real quick. As I mentioned earlier, the cases I handled, the case I referenced, they dealt with both like the sudden increase withdrawals by both of the individuals. I see that sign most often of all those ones mentioned. I think when you see an individual that's older and suddenly starts to increase the frequency of their withdrawals, especially if it's a retirement account that they're supposed to be taking out like regular withdrawals and suddenly it's increased. I think that is a significant sign or likelihood that there's something fishy going on with their account.

Taylor Bandy - So there are several issues about concerns about seniors in their diminished capacity, because seniors who fall victim to financial exploitation are almost always living on fixed income. And because of that, they have no ability to replace the principle of their investments and their loss. A lot of times they have difficulty understanding complex products. They can get confused over FA designations, meaning the roles and duties that an FA has to them and the need for generational planning. It can lead to a scam taking advantage of this adult. And this adult can give up whatever would've been their children's inheritance or even life insurance proceeds. There's a scam where scammers tried to get their by someone's terminally ill individual's life insurance policy for pennies on the dollar. And then the family is left with nothing. So as Angela mentioned earlier, this has really become an issue at the forefront of regulators' minds. FINRA has stated that member firms need to be able to more quickly and effectively address suspected financial exploitation. And so as a result, they need to have controls in place to set off those red flags that someone is potentially being abused or exploited. The SEC also expects firms to spot financial exploitation because these broker dealers and investment advisors have often been with these clients for a number of years. And they're in a really unique relationship and have an advantage and being able to spot these warning signs of financial exploitation.

Christy Boardman - That's a good point Taylor, because so often, I don't talk to my grandmother about her finances, but I know that she speaks to her investment advisor about his. So, whereas I maybe I wouldn't spot the withdrawal that seems suspicious.

Angela Turiano - And it's something that financial advisors should be aware of. And I think that as we discuss both FINRA and the SEC, there's been growing monitoring of financial firms and what they're doing to protect their investors and find these, and notice these red flags and every year FINRA and the SEC every year in January, they both come out with their annual priorities. And since 2013, seniors has been one of these priorities. So as we discussed, they're on top of this. And as if you're a financial firm, you need to make sure that your advisors are aware and understand the rules. And on that note, we are onto our next section, which we will talk about laws, rules, and regulations impacting firms, broker dealers. 
So we're gonna be discussing in this section, the federal law, which is the senior safe act, we're gonna discuss what the seniors, excuse me, exploitation reporting under the senior safe act and training, then we're gonna talk about state adult protective services statutes, which all 50 states have. We're also gonna be discussing state financial exploitation statutes. So we have the adult protective services statutes, which is sort of like the abuse umbrella. So any abusive behavior toward specified adults, the elderly or people with diminished capacity, as opposed to financial exploitation statutes, which as the name indicates is specific to actual financial fraud against the elderly or a diminished capacity individual. Finally, we're gonna talk about FINRA's rules with regard to designating a trusted contact person, reporting requirements and potential hold of disbursements and securities transactions if there is a reasonable suspicion of some kind of fraudulent activity. 
So first we're gonna discuss the senior safe act. And this law was enacted in May of 2018. The law encourages, doesn't mandate. It encourages firms to disclose suspected financial expectation by providing limited immunity with regard to such disclosures. So long as the firm provides training compliant with the act. So generally speaking, the purpose is twofold. One, the purpose of the role is to encourage a collaborative effort between regulators, financial firms and legal organizations to prevent senior financial abuse by providing immunity for the reporting. So if you could report something and should there be some kind of collateral damage, I'll call it from the reporting, you're protected from any immunity by the individual who might wanna bring an action against you saying that wasn't reason, you shouldn't have done that. You shouldn't have reported me, but you're immune as long as it's a reasonable belief that something funny was going on. That's the first, the second purpose is to encourage the development of education and training of financial advisors, which the immunity that I just discussed is conditioned upon this education. So senior safe act reporting and training, reports may be made to a broad array covered. And I say covered individuals, 'cause it's defined in the act. Covered agencies, including financial regulatory agencies, federal agencies, such as the SEC, SROs, law enforcement and adult protective services. 
The training in pursuing to the senior safe act in order to get the immunity that I discussed, they give you a guidelines of how the training needs to be conducted. First, it must be provided as soon as practical, reasonably practicable and within one year from the date of employment or affiliation with the financial institution, the training must instruct about how to identify and report financial exploitation, in doing so, they must train the financial advisors to balance that with the client's privacy and integrity. And I need to protect that when you're trying to determine if there's some kind of financial exploitation going on. And finally, and this is important, the training has to be tailored to job responsibilities of the employee. So you can't just have one training program. You have to have training that is specific to the job, the particular job the employee has. So that's reporting and training under the senior safe act. Next, the states have their own rules. As I stated before, states have adult protective services statute, which is like the umbrella statute, any kind of abuse that you might have a reasonable belief is occurring, either must be reported or may be reported. And it depends on the state. And if it's reported again, you get immunity. 
All 50 states have APS statutes related to how and when to report elder abuse. As I said, some states require reporting by all persons, other states permit reporting by all persons. Each state has different protocols and timeframes for reporting, but no matter what state, it has to be good faith reporting that triggers the immunity from civil and criminal liability. So just by way of example, since I'm in New York, New York has an APS statute as all states do, and it's permissive. So there's no duty to report. It's just a permissive requirement. Whereas our neighboring state of New Jersey, which is where I live, work in New York, live in New Jersey, it's mandatory to report suspected abuse to the New Jersey bureau of securities and county adult services provider. So those are two states right next door to each other that have different rules about reporting. 
Next, we have state financial exploitation statute, which again are specific to financial exploitation as opposed to overall abuse. Again, they could be required or permissive reporting to state APS securities commissioner, and or other agencies. They could be permissive, but holds are only allowed where the firm confronts a senior or vulnerable investor and exploitation. Diminished capacity and loan is not enough to warrant a disbursement hold. All state statutes have some required training provisions. And depending on the statute, some have permissive third party disclosures basically to notify a third party reasonably associated with the vulnerable adult versus designated by the adult. Let's just say an individual has a caretaker, has someone they designated as their person to report to, in some states the statutes allow disclosure just on another party if the firm believes that reasonable belief the person is associated with the vulnerable person and should be notified under the circumstances. But again, all this is a state by state determination and it gets kind of complicated. And if you wanna know what your state holds, and that brings us to interesting point of our discussion, Bressler has an interactive 50 state survey. And I encourage everybody to go on our website and check it out and I'm gonna have Taylor talk about it, 'cause she is one of about the keepers of the 50 state survey and she keeps it nice and up to date at all times. So Taylor, can you explain what the interactive map is all about?

Taylor Bandy - Yeah. So I along with two other associates here at Bressler, we track all of the state's financial exploitation laws and any changes or amendments or enactments that are occurring. This map is super easy to use. Anyone can Google Bressler/senior map and it'll pop right up. You can click on any state. It will list the state's adult protective service statute, the relevant provisions. And then again, if there's a financial exploitation statute, the relevant sections and whether it's required or permissive reporting. And so we are constantly tracking all the bills in those states related to financial exploitation, we do a comprehensive review at the end of every month and then just daily tracking based off of different search alerts that we have running. Like I read one this morning. It's really something that we take pride in here at Bressler and we keep up to date. So it's a great tool to use if you have any questions about what are the requirements in your state.

Angela Turiano - It is super user friendly and I'm surprised Taylor had time to do this presentation with us today because she's constantly working to keep it up to date. But it is super user friendly. So we do recommend you give it a try. Okay, so that's the federal statute and the state rules, which brings us now to FINRA rules. So we're gonna be discussing three rules today. First, rule 4512, which is about trusted, designated, trusted contact persons. And that rule has been in effect for a while, but it was just amended in February, 2018. Next we're gonna be discussing rule 2165, which was enacted in 2018, but recently had an amendment to it. And that's with regard to financial exploitation of specified adults. And when it is appropriate, when you have a reasonable belief of financial exploitation to put a hold on either disbursements or securities transactions, and finally we're gonna discuss a recently enacted rule. I believe it was in 2020, which is rule 3241, which is about registered persons being named a customer's beneficiary or holding a position of trust and the rules surrounding when that is allowed basically. 
So we're gonna start with amended rule 4512. 4512, the rule itself is just about a customer account information and maintaining rules regarding maintaining customer account information. As I stated in February of 2018, it was amended to include a trusted contact person portion, which basically states that firms must make a reasonable effort to obtain the name and contact information for a trusted contact person. Pursuant to the rule, firms must disclose to the customer in writing that they're authorized to contact the TCP trusted contact person and disclose certain information to address possible financial exploitation, to confirm the specifics of customer's current contact information, to confirm the customer's health status, to confirm the identity of any legal guardian, executor, trustee or holder of a POA. And the interesting thing about this role I always find is that what if the trusted contact person that is designated by the individual is actually like a fraudster and the individual doesn't realize that when they choose them. And then now the trusted contact person is the person that the firm is going to. So I don't know if there's ever been any litigation about that, but I always wonder that if the trusted contact person turns out to be the fraudster. Just throwing that out there for some thought.

Taylor Bandy - Great point. Because since the bad actor is so typically someone that's close to the victim.

Angela Turiano - Right, 90%. Right? I always wonder that, since that's the stat, how many of them, the TCPS are actually the fraudsters. So maybe that'll be a subject of another one of these webinars or maybe of a documentary I don't know. Anyway, the next rule we're talking about, I'm gonna turn it over to Christy, is rule 2165.

Christy Boardman - Thanks Angela. Amended rule 2165 permits firms to place an initial 15 business day hold on securities transactions and disbursements. If the firm has a reason belief of financial exploitation. As Angela mentioned, this rule was initially enacted in 2018, but amended in March of 2022 of this year, the amendments allow for transactions in addition to disbursements to have holds placed on them. And it also extended the length of time that holds can be placed. Amended rule 2165 allows holds to be extended by a firm for 10 business days where evidence supports the suspicion and allows holds to be extended for an additional 30 business days. If the firm reports the matter to a regulator or to a court, which the regulator court can likewise extend the hold for however long they choose. In order for these holds to be placed, spinner requires multiple steps before the firm can place any holds to begin only supervisory compliance or legal personnel can place a 2165 hold on a transaction or disbursement. And when the hold is placed, a firm must initiate an immediate internal review of the transaction or disbursement on which the hold was placed. 
Additionally, within two business days, the firm must notify the customer's trusted contact person and all persons authorized to transact business on the account. As we were just discussing and as you can imagine, this requirement has its own issues if the trusted contact person or additional persons authorized to transact business on the account are the ones suspected of the potential fraud or exploitation. Additionally, firms must have other general requirements in place before placing a 2165 hold. For instance, firms must have written supervisory procedures or what we commonly refer to as WSPs in place that detail the 2165 hold requirements and identify who does what, when a hold is placed. Firms also need to develop and document diminished capacity and exploitation training policies and programs in order to be able to place these holds. Of course, when a rule 2165 hold is placed, a firm should be careful to retain all records and documents related to that suspicious activity. And then the hold following the suspected bad activity. The next rule that we're going to discuss is FINRA rule 3241. Taylor, can you tell us more about that one?

Taylor Bandy - Yes. So this rule was enacted in, well, it took effect in February of 2021, and this rule requires that a registered person must decline being named a beneficiary, receiving a request or being named as executor or trustee or holding power of attorney for one of their customers unless to separate requirement or exceptions apply. So the customer is either an immediate family member or the registered person provides written notice to their firm and they receive written approval. And if they are given written approval to serve as one of those positions, then they cannot derive any financial gain from acting in one of those roles, other than reasonable fees or charges that would be customary for such a role. And so, this rule is really to serve these vulnerable adults and seniors who could be susceptible to financial exploitation, and to provide an extra buffer to keep another person who's close to them from possibly exploiting them. 
So FINRA has also imposed obligations on member firms who received that written notice from a registered person wanting to serve in one of those roles. So the member firm must perform a reasonable assessment of risk created by assumption of the role. They have to make a reasonable determination of whether to approve with conditions and limitations or deny the person's request. And if they set conditions and limitations, then the firm has to reasonably supervise the registered representatives' compliance with the conditions and limitations. So that's an ongoing duty of the firm. And then upon completion of the firm's assessment, the firm must advise the registered person of the decision in writing. And then there are also document retention requirements. So the firm has to have written procedures to comply with these obligations and retain records either for the shorter of three years after the status has ended or terminated, or the registered representative has left the firm. So whichever is shorter.

Christy Boardman - I just can't imagine any circumstances where this would be a good idea other than maybe a family member. But I know most firms, even before this rule, this is something that they just did not want their financial advisors doing. There seems to be no upside and the potential for a lot of downside. And now it's just recently been codified basically but I think they make it so annoying to do that. They're like, just don't do it. It's just not a good idea.

Taylor Bandy - Exactly. I can't see where a firm would want that ongoing duty to supervise the registered representative.

Christy Boardman - Yeah, I believe that most firms just don't allow it at all unless it's a family member, because for litigation is so high just by having that, having someone being a beneficiary of their customer.

Angela Turiano - Right. Okay, so that brings us to our final section of our presentation, which is best practices and practical tips. And this is basically both to prevent, or should I say, prevent or stop fraudulent activity or exploitation, and also to protect as a firm to protect yourself against possible litigation resulting from the exploitation. So just to go over some best practices, the first one would be to tailor policies and procedures to firm's particular business lines. And this is kind of the theme. And you gotta stay away from those general, just general policies. And you have to make sure the policies are specific to either what the employee is doing or what the section of the practice area of the firm is doing to make the procedures the most effective. The second one would be clear escalation procedures. And this is very important because if it's difficult to know what to do when something happens, then things are bound to go wrong. So you need to have clear escalation procedures that specify concrete steps to the representatives and the steps they should take and who in particular they should notify. A third best practice is to understand and overlap the differences between FINRA rules, state reporting and holding laws, excuse me, state report and hold laws and the senior safe act as we discussed today. Training, training, training very important to train employees on rule 2165, that Christy discussed for regulatory safe harbor and the immunity. And finally train employees to detect the red flags. We discussed a financial exploitation and to understand how to report suspected exploitation both internally and to state agencies. So those are some best practices that we talked about.

Christy Boardman - Additionally, they're recognized preventative measures in addition to the best practices that firms and representatives can can take in order to try to prevent and catch any fraud or financial exploitation. One such thing as we've discussed in rule 2165 holds are allowed to prevent fraud once such fraud or exploitation is suspected. In order to streamline this process, firms should have clear guidelines in place that centralize reporting and whole functions. Advisors should also when possible, try to increase their contact with their older clients. It's great to encourage in-person meetings, as you can imagine this preventative measure has been a lot harder in recent years due to the pandemic. But when an advisor has a chance to meet with clients in-person, then they can get a lot more than then they can get from an email or speaking on the phone with them. Since POA and guardian accounts are typically involved, vulnerable individual firms and advisor should be even more cautious with these accounts and potentially even have more guidelines and regulations related to these accounts in order to protect those potentially vulnerable customers.

Taylor Bandy - And these preventative measures come with the training that we just discussed. The representatives need to understand that what's going on and the need to, for example, increase contact with other clients and be vigilant with the POA accounts. While it seems intuitive, the training is really what's so important so that they fully understand, and it's in the front of their mind that this is something they need to do.

Angela Turiano - Exactly. That's a great point. In addition to general preventative measures, there are things that firms can do that just have automated supervisor, group reviews, and certain situations where it is more likely in these situations that exploitation can be taking place. For instance when there are any distributions on accounts that involve a POA or a guardian, when a customer has losses that exceed 25% of the accounts value, when retirement accounts have rapid depletion of the funds we discussed earlier, that can be a red flag and that's a good automated supervisory review. Or when they're purchases that exceed 25% of the specified adults liquid net worth. And Taylor, can you tell us what else firms can do to protect their senior clients?

Taylor Bandy - Yes, exactly. So as we've been saying throughout this presentation, I think training is one of the most important things, training the employees to recognize signs of diminished capacity, signs of financial exploitation. And just to look out for these key red flags that financial exploitation could be occurring. It's important to involve third parties. So family, friends, support network, people in law enforcement reporting any suspected elder abuse to the local adult protective service agency. And it's important to educate clients about the risk of exploitation and the resources that are available to them to prevent it. And I think that's best to start doing at an early time with your clients and try to make them aware of these different scammers and scams that are going on. And like Christy was saying earlier to just delay disbursements or there's reason to believe that financial exploitation is occurring or being attempted. And if your state allows it to delay transactions as well. 
There are several legal tools and remedies available to firms. You can ask the local police department to perform a wellness check on an individual if you think a caretaker or a family member is financially exploiting them, you can reach out to local governmental agencies like health and human services, the local adult protective services agency. Affirm if there is a dispute among beneficiaries as to who are the correct named beneficiaries, the firm can interplead the assets of the account and allow the court to determine who has ownership rights to help prevent liability to the firm. And then you could recommend petitioning for guardianship or conservatorship if you think that senior client can no longer make their own financial decisions.

Christy Boardman - You guys have seen Angela and Taylor, but to me it seems like, everyone wants, obviously everyone wants the same thing. They want to protect these vulnerable investors. And I found that regulators and the state securities commissions, things like that are very willing to help and give guidance on what steps can be taken in order to make sure that senior investors or vulnerable investors are protected. Is that what you guys have found as well.

Angela Turiano - 100% and going back to what we were talking about earlier with the permissive versus mandatory reporting, I feel like most firms, regardless of what state they're dealing in has a consistent procedure when dealing with senior investors and the question you have to ask is why not report it? If there's a reasonable belief, something going on, are you gonna look to see if New Jersey is a mandatory or permissive state? Or are you just gonna report it because it's the right thing to do. And what's the downside? As Christy just mentioned, they're there to actually help. These people are vulnerable, we don't want them, everybody wants to protect them. Nobody wants them to be defrauded. And so there's plenty of agencies, including the state, including the other agencies that we mentioned today that are more than willing to help to protect these people that essentially can't protect themselves. I agree with that 100%. That concludes our presentation. 
But before I do conclude, I do wanna point out that the first priority here of what we're discussing is to protect the senior and the vulnerable investors. But if you're out there and you're a broker dealer, or you're a firm, you have to remember that should there be exploitation and should your firm get pulled into litigation or arbitration, usually, as I mentioned earlier, usually the fraudster is either broke and in jail, or they can't find him or her. And so the firm is gonna be left as the defendant or respondent in litigation, in arbitration. And at the end of the day, these people who were defrauded and lost money, the arbitration panel or the jury is gonna wanna give them their money back. By following what we've discussed today, not only are you protecting the senior and vulnerable investors, but you're protecting your firm from exposure from these fraudsters and what they're doing. And we tried today to give you an overview of, as we discussed the state, federal and FINRA rules on protecting seniors from financial exploitation. 
There are other resources out there, should you wanna know more details on the topic. First, there is NASAA has a website called serveourseniors.org. NASAA is the North American Securities Administrators Association. I actually had to write that down 'cause I never remember what NASAA stands for, but it's the North American Securities Administrators Association, essentially, it's like the voice of state regulators throughout North America. That's their group. Next, we have FINRA and we actually quoted from FINRA's website earlier, finra.org/industry/senior investors. If you just put in FINRA senior investors it'll come up. FINRA also has a hotline securities helpline for seniors 844-57-HELPS. SIFMA, which is the voice of the us securities industry has a senior investor protection toolkit. The AARP, no surprise foundation has something called elder watch. And finally, as we referenced earlier, we have the seniors map, which is free for everyone to use and check out and see what your state has while we have protections for senior and vulnerable investors. 
And with that, that concludes our presentation for today. We really appreciate you joining us today. And certainly if you have any questions on this topic, you can feel free to reach out to any of us at Bressler, Amery and Ross. Again, I'm Angela Turiano. And with me is Christy Boardman and Taylor Bandy. And you can find any of our contact information on the Bressler website. Thank you so much for joining us and I hope you enjoyed our presentation.
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