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NASAA: Nearly 60% of State Advisors Lack Procedures Protecting Senior Investors

State securities regulators look to examinations in assessing advisor capabilities at spotting, helping curb elder fraud.

Almost six out of 10 state-registered investment advisors lacked available policies and procedures to help them in identifying and protecting seniors or vulnerable persons from “financial exploitation,” according to an analysis of a series of examinations by the North American Securities Administrators Association (NASAA).

NASAA reviewed the results of 1,206 investment advisor examinations for the analysis, 68% of which were for one-person firms. The previous review was completed in 2019, and this year’s exams were conducted between the start of the year and July 7. In all, state securities examiners reviewed 289 IAs for the first time, with most of the exams done remotely.

In all, 58.5% of respondents said they didn’t have the proper policies or procedures in place to protect seniors in danger of exploitation. Additionally, 23.5% of respondents reported their firm did not have training available for suspected financial exploitation of vulnerable investors, with slightly over 8% reporting that training content “was not maintained by the advisor.” 

NASAA President and West Virginia Deputy Securities Commissioner Lisa Hopkins said the results showed advisors need to improve how they identify and report when they suspect someone is taking advantage of an investor.

“Our hope is that this data will foster greater and earlier detection and reporting of suspected financial exploitation of older Americans,” Hopkins said.

The overall review was wide-ranging in its scope, looking for a variety of deficiencies. Among those NASAA analyzed, 44% of respondents replied having at least one deficiency in "registration," while 41.7% reported the same in "books and records," and 30.5% replied the same in regard to "contracts." In registration deficiencies, about one in five respondents reported “inconsistencies” between their Form ADV Parts 1 and 2. Under the "advertising" category, about 22.6% reported there were “untrue or misleading statements or omissions” concerning qualifications, services or fees, according to the NASAA analysis.

Of the available categories, only the number of respondents reporting at least one deficiency in “supervision and compliance,” “advertising” and “custody” increased between 2019 and 2021. In contrast, respondents’ reporting cybersecurity deficiencies dropped significantly, from 26% in 2019 to 5.3% in 2021. Mississippi Securities Division Director Michael Huggs said cybersecurity is a NASAA priority and the association was “pleased” by the decline.

“I believe the investment advisor industry is getting the message of how important cybersecurity is and is starting to implement policies and practices as well as taking advantage of the free cybersecurity checklist offered by NASAA to help assess their cybersecurity practices,” Huggs said.

In June, NASAA partnered with the Securities and Exchange Commission and the Financial Industry Regulatory Authority to release training resources to better assist firms, affiliated brokers and advisors spot potential cases of the financial exploitation of senior investors. They intended the training to help firms comply with the 2018 Senior Safe Act. In many cases, complying with the act can protect certain financial institutions, including advisors and b/ds, from liability in civil or administrative proceedings, provided they report their suspicions. 

Senior financial exploitation can be a significant drain on victims; a 2019 analysis by the Consumer Financial Protection Bureau found that exploited seniors suffered an average loss of $34,000 in total.

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