FINRA seniors’ hotline leads to US$4.3 million in reimbursements

Investment dealers should have policies in place to detect and address the exploitation of senior clients, including situations in which reps maybe involved, according to new regulatory guidance.

The Investment Industry Regulatory Organization of Canada (IIROC) published new guidance today on specific compliance and supervisory issues that may arise for firms in their dealings with senior clients.

“The number of Canadians over the age of 65 is on the rise and the average life expectancy of Canadians continues to increase. In light of this aging client base, [dealers and reps] should be aware of, and adequately prepared to deal with, the issues that flow from this demographic trend,” the IIROC guidance says.

Among the key concerns regarding senior clients is the heightened risk of financial exploitation and the possibility that their mental capabilities are deteriorating. IIROC says that dealers and reps “play an important role in reducing the likelihood that their clients are financially exploited and identifying signs that their clients are suffering from diminished capacity.”

To that end, IIROC recommends that dealers adopt policies that are designed to “detect and address potential financial exploitation and diminished capacity situations.” The policies should include getting clients to name a trusted emergency contact and enabling the firm to “place a temporary hold on the client’s account in instances where financial exploitation or diminished capacity is suspected.”

Additionally, the regulator says these policies should address the possibility that the rep is involved in the suspected financial exploitation or that he or she is taking on a much greater role in making investment decisions for a client. In these sorts of cases, it says, an independent person within the dealer firm should be responsible for dealing with the “trusted contact person.”

IIROC’s notice also provides advice on senior-specific considerations in several other areas, including assessing suitability, carrying out due diligence — such as know-your-client (KYC) and know-your-product (KYP) requirements — and the use of powers of attorney (POAs). While it acknowledges that senior clients are not a homogeneous group, IIROC aims to point out “compliance and supervisory considerations that may be uniquely associated or more common with providing investment services to senior clients.”

Many of these issues are addressed in best practices that were published by the trade group the Investment Industry Association of Canada (IIAC) in 2014. IIROC says that it is “generally supportive of the best practices set out in the IIAC report,” but that there is a need for further regulatory guidance on these topics.

For example, the IIROC guidance calls on firms to adopt specific policies concerning POAs for all clients, including senior clients. It stresses that effective communication with senior clients should be a priority for dealers.

Further, IIROC says, firms’ core investor protection requirements — such as suitability assessments and KYC and KYP procedures — should reflect the unique issues that may arise for some senior clients, including their time horizons or that they may have conflicting or unrealistic investment objectives (such as both generating income and preserving capital).

It also advises firms to have robust supervisory systems in place to ensure suitability for senior clients, and suggests that firms may decide to “conduct regular focus testing on senior client accounts” to ensure those obligations are being met.

Finally, the guidance recommends that dealers adopt internal processes for escalating difficult issues that involve senior clients within the firm “to obtain guidance on how to resolve difficult questions involving financial exploitation and other issues, such as POAs and diminished capacity.”

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