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State regulators: advisers fail to guard against financial abuse by seniors

Most investment advisers lack internal systems to respond to financial abuse from elderly clients, according to a survey by state regulators.

A review conducted earlier this year by the North American Securities Administrators Association shows that 58.5% of advisers had no policies or procedures to address financial abuse of senior executives; 23.5% did not train advisory staff to spot problems; and 17.7% lacked adequate supervision in this area.

The scan consisted of 1,206 reviews of 289 state-registered investment advisers in 42 NASAA jurisdictions from Jan. 1 to July 7. Most of the exams were done remotely due to the coronavirus pandemic.

The group of state regulators passed a model law to protect vulnerable adults from financial abuse in 2016. Passed in 32 states, the measure – which applies to brokers and investment advisers – includes mandatory reporting of suspected abuse and provides a safe haven for brokers and advisers to withhold disbursements from accounts of clients who may be victims. The Financial Industry Regulatory Authority Inc. has adopted a similar rule for the brokerage firms it oversees.

State regulators want advisers to step up efforts to protect elderly clients.

“The results of this coordinated multi-state initiative show that investment advisers need to make improvements in recognizing and reporting suspected abuse,” said NASAA President Lisa A. Hopkins, Senior Deputy Commissioner to West Virginia Securities, in a statement. “Our hope is that this data will facilitate greater and earlier detection and reporting of suspicions of financial abuse by older Americans.”

Last week, NASAA released a report on the model law designed to encourage more states to adopt the measure.

When scanning for reviews, the top five areas where state regulators found deficiencies were registration (44%), books and records (41.7%), contracts (30.5%), supervision and compliance (29.5%) and advertising (19.7%), according to a statement from NASAA.

State regulators have seen improvement among cybersecurity compliance advisers, with gaps falling from 26% in 2019 to 5.3% this year. Exam scans take place every two years.

“Cyber ​​security has been a priority for NASAA, and we are delighted to see the decrease in deficiencies in this category,” said Michael Huggs, director of the Mississippi Securities Division, in a statement. “I think the investment advisory industry is getting the message of the importance of cybersecurity and starting to implement policies and practices, as well as take advantage of the free cybersecurity checklist offered by the NASAA to help assess their cybersecurity practices. ”

The advisers who participated this year were small: 68% were one-person operations; 62.8% had more than $ 30 million in assets under management, while 37.2% had assets under management of less than $ 30 million.

State regulators oversee advisers with less than $ 100 million in assets under management. Great advisers must register with the Securities and Exchange Commission.

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