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NASAA Adopts Model Rule to Fight Senior Financial Abuse

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The North American Securities Administrators Association said Monday that its membership has voted to adopt a model act designed to protect vulnerable adults from financial exploitation, including allowing broker-dealers or advisors to impose an initial delay of disbursements from an account of an eligible adult for up to 15 business days if financial exploitation is suspected.

The model, entitled “An Act to Protect Vulnerable Adults from Financial Exploitation,” provides new tools to help detect and prevent financial exploitation of vulnerable adults.

“The NASAA model act will help securities regulators, investment advisors and broker-dealers, as well as Adult Protective Services agencies work in partnership to protect our most vulnerable investors,” said Judith Shaw, NASAA president and Maine securities administrator, in a statement. “I am pleased that the NASAA membership adopted this model act, which now is available for individual jurisdictions throughout the United States to enact as legislation or implement through regulation.”

The Financial Industry Regulatory Authority issued a similar proposed rule for public comment last October, which would also give BDs the power to place a temporary hold on disbursement of funds or securities from an elderly or mentally/physically handicapped customer’s account if there is a reasonable belief that the person is being financially exploited.

SEC Investor Advocate Rick Fleming said he’d be watching the progress of NASAA and FINRA’s rules, and said that he’d be recommending the agency issue a similar rule. He told Congress any elder fraud rule or law “must balance two potentially conflicting goals: to respect every individual’s right to self-determination, and also to prevent his or her unwitting financial self-destruction.”

The NASAA model act also mandates reporting to the state securities regulator and state adult protective services agency when a qualified individual such as a securities broker or advisor has a reasonable belief that financial exploitation of an eligible adult has been attempted or has occurred.

It also authorizes notification to third parties only in instances where an eligible adult has previously designated the third party to whom the disclosure may be made. The model act directs that disclosure may not be made to the third party if the qualified individual suspects the third part of the financial exploitation.

The delay on disbursements can be extended for an additional 10 days at the request of either the state securities regulator or adult protective services.

The act also provides immunity from administrative or civil liability for broker-dealers and investment advisors for taking actions including delaying disbursements as permitted under the act.

Also under NASAA’s act, qualified individuals such as securities brokers or investment advisors could provide records that are relevant to the suspected or attempted financial exploitation to government authorities.

The NASAA model act applies to adults age 65 and older and individuals who qualify for protection under a state adult protective services statute.

— Check out Galvin Charges Citizens Securities With Misleading an Elderly Investor on ThinkAdvisor.