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Julie DiMauro on sales: Compliance tips to avoid elder abuse

According to research collected by the North American Securities Administrators Association (NASAA), although people age 60 and older make up 15 percent of the U.S. population, they also account for about 30 percent of fraud victims.

Instances of abuse can entail representatives selling unregistered securities and investment products unsuitable for a person of a certain age and economic situation. They can even involve stealing money from clients who are cognitively impaired or enabling unauthorized family members to withdraw assets.

The SEC, NASAA, and the Financial Industry Regulatory Authority (FINRA) issued in 2008 and updated in 2010 a joint report detailing how firms can strengthen their policies and procedures for serving investors as they approach and begin retirement.

FINRA and the SEC listed their concern for vulnerable investors and the sale of unsuitable investment products to them as part of their examination priority areas for 2015.

FINRA has noted that protecting senior investors means compliance with requirements apart from the federal securities laws and FINRA rules that, for example, require reporting or the intervention of court-appointed guardians when elder abuse is detected.

It also means reviewing of communications with seniors; the suitability of investment recommendations made to seniors, the training of registered representatives to handle senior-specific issues, and the supervision firms have in place to protect seniors.

Practices such as cold-calling and sales seminars are an established part of the securities industry and a legitimate way for brokers to find clients. They can, however, be associated with the high-pressure sale of unsuitable, low-priced or speculative securities and lead to rule violations that draw costly fines.

Compliance officers must understand which activities could be breaking FINRA Rule 2211 and applicable SEC regulations that pay special attention both to cold-calling tactics that can be deemed abusive, and to “free-lunch” seminars that often feature misleading advertising and other literature.

In the next post, I’ll discuss disclosure and other sales practices needed to comply with government rules and industry best-practices guidance.

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This post is based on an article first published on the Accelus Regulatory Intelligence subscription service offered by Thomson Reuters and geared to compliance, risk and legal professionals in the financial services industry.


Julie DiMauro is a contributing editor of the FCPA Blog. She works in the Regulatory Intelligence group at Thomson Reuters in New York and can be reached at [email protected].

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