WASHINGTON — State securities regulators are paying close attention to the policies, procedures and training related to sale of investment products to seniors and other potentially vulnerable customers when they examine broker-dealers.
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A preliminary report released Sunday by the North American Securities Administrators Association (NASAA) indicates that regulators have been successful in having the people who manage broker-dealers’ relationship with seniors improve.
However, “continued progress is necessary to best serve our aging population,” said NASAA President and Maine Securities Administrator Judith Shaw.
The 2016 NASAA coordinated examination initiative included 62 exams, focused largely on activity in senior client accounts at the examined firms. The coordinated exams were designed to gather information from the firms on policies, procedures and training related to seniors and other potentially vulnerable customers, according to Andrew Hartnett. He is chairman of the NASAA Broker-Dealer Section and Missouri Securities Commissioner.
The exams focused on four key issues:
- the suitability of recommendations to senior investors;
- communications with seniors;
- escalation protocols in the case of suspected elder abuse; and
- escalation practices in response to signs of diminished capacity.
Approximately 39 percent of the exams resulted in findings that the firm had established written procedures addressing all four of these areas, but 20 percent of the exams found that the firm had not established written procedures addressing any of the four areas.
The exams found that about 62 percent of broker-dealers had established a formal committee or designated at least one person to focus on senior investor issues; and that there appears to be limited development of “trusted contact forms” at firms, and very limited use of the forms even after they are developed.
Moreover, only 24 percent of exams involved a firm that requires verification of senior clients’ profile information more frequently than every 3 years. Potentially unsuitable recommendations to senior investors were identified in 10 percent of the exams, NASAA officials found.
Other findings included the fact that although many firms do not permit the use of “senior designations,” those that do may need to improve related controls and procedures. The exams also determined that at most offices where any complaint had been filed, the majority had been filed by senior clients.
“The preliminary findings indicate that many broker-dealers are taking valuable steps to develop procedures that are mindful of the common issues facing senior clients,” Shaw said. “However, they also identified areas where improvement is needed.”