The Securities and Exchange Commission's national examinations of investment advisors appear to be zeroing in on how advisors treat senior citizen clients, according to a veteran attorney.
SEC examiners are focusing on the policies and procedures advisors are using to identify, work with and protect senior clients who may be prone to financial fraud, said Fred Reish, a partner at the national law firm of Drinker Biddle who based his assessment on his clients' experiences.
“The examination starts with 11 questions about senior clients,” said Reish. “The questions are the same for all of the exams that we have seen, suggesting that this is a national survey project for the SEC to gain an understanding of the current practices of investment advisors."
A senior client is defined by the SEC “as any retail advisory client who is age 62 or older, retired, or transitioning to retirement, including accounts of deceased clients, and retail clients in joint accounts with at least one individual meeting this definition,” according to examination documents.
SEC examiners are asking advisors for their policies and procedures in regards to the following issues:
• Issues associated with senior clients perceived by the advisor to have possible diminished capacity or competence.
• The handling of client requests for changes to beneficiaries, including all policies and procedures concerning monitoring and supervision relating to changes to beneficiaries.
• Powers of attorney, including all policies and procedures concerning monitoring and supervision relating to changes in power of attorney as they relate to the advisor and/or third parties with power of attorney authority.
• Facilitating the transition of a senior client from actively employed to a retired status—for example, communicating with a client to set up an updated investment profile.
“As this initiative indicates, the SEC and other regulators are focusing on issues related to older investors," Reish said. "That is, at the least, partially related to the aging of the baby boomers in a 401(k), 403(b) and IRA world, where retirees must rely on their savings to provide income for 20, 25, 30 or more years.”
“In my view, we are in the early stages of regulation and examination of investment issues related to older investors," he said. "The SEC and Finra (and other regulators) will be more active in the future and the risk levels for investment advisors are rising."
At a minimum, investment advisors should consider the issues raised by the SEC and review their practices, policies and procedures and update them for the current regulatory environment, the attorney said.
Reish had these suggestions for best practices and risk management advisors should use with senor clients: