Every month, we have advisors reporting concerns about cients with diminished capacity or potential financial exploitation of seniors. This includes suspecting a client is the victim of fraud or a scam. FINRA and the SEC require financial advisors and broker/dealers report instances of financial exploitation of seniors. Therefore, Cetera has policies and procedures to follow whenever you have these concerns.
It is vital you are well informed and prepared to respond appropriately. If you suspect that a client has diminished capacity, or is the victim of abuse or exploitation, please contact the Prosperity Network OSJ immediately for further guidance: 913-529-5500 or compliance@prosperityadvisors.com
It was reported recently that a scammed, elderly client sued their financial advisor (with a different broker/dealer) of negligence and breach of fiduciary duty for allowing large, suspicious withdrawals. The client requested these withdrawals but was a victim of a scam. The allegation is that the financial advisor did not ask the reason for the suspicious withdrawals and did not reach out to a trusted contact to confirm the transactions were legitimate. The withdrawals were from an IRA, which caused the client to be subject to significant tax consequences. The lawsuit alleges that the financial advisor and his firm owed a duty to the client to investigate the series of suspicious withdrawals before executing them.
This is alarming, and a reminder that the following steps should be followed:
- Report to the Prosperity Network OSJ immediately any suspicions of diminished capacity, abuse, or fraud. A Vulnerable Adult Incident report will be completed and submitted to Cetera Compliance. A specially trained team at Cetera will contact you and go over action steps based on the specific facts and circumstances.
- Have a trusted contact listed on all accounts. Reach out to the listed trusted contact to confirm any large withdrawals or other unusual requests are legitimate.
- Example: A senior client asks for $10,000 so they can send it to their new boyfriend who has the opportunity to invest in precious jewels. The boyfriend promised to pay her back in 2 weeks. You should reach out to the trusted contact to see if they are aware of the situation.
- Ask follow-up questions when a client has unusual requests. You may want to request an invoice for large withdrawal requests that were not anticipated.
- Example: A senior client asks for $70,000 for a new roof. That is unusually high and you should ask them for an invoice. You should also reach out to the trusted contact to see if they were aware the client needed an expensive new roof, and if the amount requested makes sense.
- Depending on the situation, Cetera can place a temporary freeze on the account.
- Example: A senior client insists on a $100,000 withdrawal for an “investment," The client is very resistant to describing the investment to the advisor. After consistent prodding, the client reveals it is “personal” and involves Elon Musk and a private investment. The advisor escalates and Cetera is able to freeze the account temporarily to provide time for the trusted contact and family members to be contacted and consulted.
- If diminished capacity is suspected:
- Cease making securities recommendations to the client or executing investments in the account until the concern is resolved or no longer exists.
- Communicate with the client’s designated trusted contact person or a person provided with power of attorney for the client.
- Conduct a review of the client’s accounts and identify any transactions or patterns that could indicate an issue (such as financial abuse).
- Document conversations with the client in sufficient detail to avoid any misunderstandings and to help document any indicators of diminished capacity.
- Example: Document if the client appears unable to process simple concepts, has memory loss, exhibits erratic behavior, appears to be concerned or confused about missing funds (when reviews indicate there were no unauthorized money movements or no money movements at all), or the client is not aware of, or does not understand, recently completed financial transactions.
- Send follow-up letters to the client after conversations to document and reiterate what was discussed.
Note: A client’s privacy must be protected when involving third parties after diminished capacity is suspected. Proper written authorization must be obtained prior to discussing a client’s personal or account information with anyone who is not a parter to the account, does not have a valid power of attorney, or who is not listed as a trusted contact person on the account.
Click here for FINRA training document, Addressing and Reporting Financial Exploitation of Senior and Vulnerable Adult Investors.
Click here for guidance from the Cetera Advisor's Registered Representative Compliance Manual.
Click here for Cetera's FAQ document regarding vulnerable adults.
Please contact the Prosperity Network OSJ with any questions. 913-529-5500 Option 2 or compliance@prosperityadvisors.com
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