IIROC puts focus on seniors’ issues

This situation also is creating new challenges for regulators, challenges that IIROC is seeking to address through forthcoming guidance on issues related to senior investors. This proposal – which is in the midst of being developed and currently is slated to be published in June – will address issues of compliance, supervision and other practices when financial services firms and their financial advisors serve senior investors.

For a variety of reasons, the elderly are viewed as being a vulnerable group, particularly regarding financial matters. Seniors may suffer diminished mental capacity, either through the normal depredations of aging or from other factors, such as the side effects of illness and the drugs used to treat diseases. Typical suitability considerations – such as time horizon, risk tolerance and liquidity requirements – evolve and take on greater significance for older investors. Moreover, seniors have less margin for error. When they suffer a loss – whether because of markets, poor advice or malfeasance – it hurts more because there’s less time to recover from it in the markets and probably less opportunity to make it up through employment income.

So, as the ranks of older clients grow, the protection of senior clients is emerging as an increasingly important strategic priority for securities regulators. According to IIROC’s latest annual report, 43% of the complaints the regulator receives involve seniors – and the majority of those complains relate to suitability.

“We take very seriously the protection of seniors and vulnerable investors,” notes Paul Riccardi, senior vice president, enforcement, member policy and registration, with IIROC, “especially with changing demographics and an aging population.”

Indeed, the IIROC report notes that about one-third of the disciplinary hearings it has launched over the past couple of years involve cases that relate to senior investors. Furthermore, IIROC expects this to continue in the years ahead.

Now, this increasing focus on senior investor issues is making its way to the policy front as well. Although IIROC has created assorted new rules and guidance that focus on firms’ dealings with retail clients generally in recent years – such as best practices for product due diligence, reforms to the client relationship model and complaint-handling rules – there also are senior-specific issues, Riccardi says, that increasingly need to be addressed.

“We recognize that there will be other challenges,” he notes. “For example, when other generations inherit or take over managing seniors’ assets.”

As a result, IIROC is developing specific guidance to deal with some of these issues, which are likely to become increasingly prevalent in the years ahead.

Next: Concern from the MFDA
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Concern from the MFDA

IIROC isn’t alone in this concern about senior investors. The Mutual Fund Dealers Association of Canada (MFDA) also has identified this topic as being a strategic priority. In 2012, the MFDA revised the case-screening guidelines that the regulator’s enforcement department uses to put greater emphasis on qualitative factors in deciding which cases to take on. This includes making a change to allow MFDA staff to prioritize complaints involving seniors and to expedite those cases. About one-third of the enforcement hearings that the MFDA initiated in fiscal 2013 involved senior investors or other types of vulnerable clients, such as those with limited financial resources or language, literacy or disability issues. That’s about the same proportion as for IIROC.

On the education front, the MFDA hosted its first Seniors Summit this past autumn to discuss issues related to older investors. And the MFDA has conducted training for both its own staff and dealers, highlighting factors that may make some seniors more vulnerable to unsuitable advice, conflicts of interest and financial abuse.

Regulators in the U.S. also have been targeting the emergence of senior-specific issues for several years. In 2007, the Financial Industry Regulatory Authority (FINRA) carried out several compliance sweeps that focused on issues involving seniors, including the use of misleading professional designations that suggest expertise in seniors’ issues, the sale of complex products to seniors and tactics used to pitch seniors at “free lunch” investment seminars.

In 2008, FINRA, along with the U.S. Securities and Exchange Commission (SEC) and the North American Securities Administrators Association, published a joint report setting out the useful practices that they found firms were using to handle the growing significance of senior investors. That report was updated in 2010 in an effort to help firms “identify and implement additional practices” to ensure that the U.S. financial services sector is conscious of the particular needs of senior investors.

All of this prior work done elsewhere is likely to inform IIROC’s work to some extent. Riccardi reports that IIROC is developing its guidance by drawing on both “resources and best practices from other jurisdictions” and the work of an ad hoc subcommittee of IIROC’s compliance and legal section policy advisory committee that has been set up to look at seniors issues.

“The work of the [sub]committee,” Riccardi says, “including its experiences in the industry together with best practices, will help make this [forthcoming] guidance more valuable.”

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