This is where financial services meets social services. It is also where legal practitioners can hop on board an emerging practice area that is creating jobs throughout the nation and the economy while exciting interest in elder law beyond its typical universe of sole practitioners and small law firms specializing in elder law. The broader audience now consists of law firms of all sizes as well as financial services companies and governments at all levels.
I recently attended a conference in New York City on the topic of elder financial abuse chaired by Roberta Romano, Yale Law School’s Sterling Professor of Law, and was stunned by the list of attendees. I expected to mingle with the customary attorneys who go to such CLE events (i.e., the aforementioned boutique firm and sole practitioner cohort). Instead, the vast majority of attendees hailed from major, “white-shoe” Wall Street law firms and the biggest players in the financial services industry, including Wells Fargo, Morgan Stanley, and other Wall Street banks.
The implications of the attendee list were obvious: there must be big bucks and/or big risks in elder financial abuse. The conference participants with whom I spoke confirmed this. Delving further into the subject when I returned home, I discovered that this assessment was spot on.
The U.S. government has put more resources into targeting and monitoring elder financial abuse, primarily via the Justice Department and the Securities and Exchange Commission’s Office of the Investor Advocate and the agency’s Enforcement Division.
In February 2017, the SEC approved the Financial Industry Regulatory Authority (FINRA) rules designed to protect senior investors. The essence is that broker-dealers will now be required to make reasonable efforts to obtain from customers the name and contact information of a “Trusted Contact Person,” who may be contacted by the broker-dealer to discuss a customer’s account under circumstances that suggest there may be health issues or if there are suspicions the customer has been the victim of financial exploitation. In addition, if the broker-dealer has a reasonable belief that a senior investor may be the subject of financial abuse, the broker-dealer may place a temporary hold on the disbursement of funds or securities from the senior’s account. The effective date is February 2018.
All of this activity is designed to protect both senior investors and their financial services fiduciaries. Until now, if a broker-dealer, for example, were to alert family members that it suspects that an aging customer’s cognition is failing, it at a minimum would violate privacy laws and policies, if not worse. In addition, without such new rules, a financial advisor cannot ignore a customer order to liquidate a position and deliver the proceeds due to mental health concerns at a minimum risks triggering a complaint for not following a clear order. The new rules provide a safe harbor.
Sen. Susan Collins (R-ME), chair of the Senate Special Committee on Aging, reintroduced her Senior $afe Act in January 2017, which is designed to protect vulnerable adults from financial exploitation. The bill would protect banks, credit unions, investment advisors, broker-dealers, insurance companies and certain supervisory, compliance and legal employees from civil or administrative liability — as long as they receive training in how to identify and report predatory activity and disclose any possible exploitation of senior citizens to state or federal regulatory and law enforcement entities. A similar bill passed the House last July.
The bill is modeled on a Maine program that also serves as the template for a model rule developed for adoption at the state level by the North American Securities Administrators Association.
In the States
Elder Financial Abuse Task Forces are now or have recently been active in many states and cities. Major and mid-size law firms that traditionally have not focused attention on elder law due to its modest revenue potential are now rethinking this practice area. A crazy quilt of laws addresses this issue, one that is escalating rapidly as the population ages. There are currently 78 million Baby Boomers “aging up” (65+) at a rate of 10,000 per day, a growth surge that began in 2011 and will not finish until 2029.
Private Sector Activity
Those organizations and individuals who manage other people’s money are increasingly concerned with elder financial abuse, especially with respect to how it might involve their fiduciary relationships and liability exposure. As a result, financial services industry firms and their outside counsel and advisors are ramping up their staffs. Morgan Stanley, for example, has six Risk Officers whose primary responsibilities include monitoring accounts for elder financial abuse. If they believe that there might be such abuse, they sometimes put a hold on distribution of assets and/or report suspected misconduct to local Adult Protective Services agencies.
Morgan Stanley is not an outlier. Other financial services organizations are following its lead and hiring attorneys to undertake similar duties.
As indicated above, law firms of all sizes are also staffing up, launching new elder financial abuse practices.
Organizations like the Securities Industry and Financial Markets Association (SIFMA) and the Securities Investor Protection Corporation (SIPC) are focusing special attention and resources on elder financial abuse.