Senior Investor Protection White Paper – Transactions v Disbursements
As the securities industry continues to work toward new ways to expand its protections for its senior and vulnerable clients, legislators and regulators have begun to respond by providing new tools for the industry. “Report & Hold” Laws are sweeping the nation. These laws provide financial institutions with a safe harbor from liability when they temporarily pause suspicious transactions or disbursements to allow an investigation to take place before the potential exploiters receive their proceeds. 16 states have recently enacted new “Report & Hold” laws and that number continues to grow; FINRA, the industry’s frontline regulator, has also adopted a “Report & Hold” safe harbor. One of the vital discussions taking place in the development of these new safe harbors is whether it should apply to both transactions and disbursements. This White Paper walks through the important policy and legal considerations that surround this decision and makes clear that transactions must be included to realize robust and effective investor protections.
Excerpt
The Problem
Financial exploitation of senior and vulnerable adults is a serious and growing issue that has destructive impacts on both the individual and the state. Seniors can often lose the entirety of their retirement savings to bad actors, leaving them unable to maintain their independence or pay for their own healthcare – not to mention the added stress, significant health impacts, and often the loss of important relationships.
Nationally, seniors lose an estimated $2.9 billion every year in cases of financial exploitation reported by media outlets,2 while only an estimated 1 in 44 cases are even reported to authorities.3 While no one has yet been able to estimate the full impact of financial exploitation on the national economy, there is no doubt that the impact is extensive. An additional challenge is that the bad actor is often a family member, friend or caregiver of their victim – in fact, a July 2016 study in New York State found that 67% of verified cases of financial exploitation were committed by family members.
Financial exploitation also has serious consequences for the state. When a senior loses their life savings, they are generally not in the position to re-earn those losses. Moreover, the loss of this income often results in a loss of independence, an inability to support themselves and increased reliance on government programs.5 Examining estimates from the same New York State study referenced above, the identifiable costs of financial exploitation (in that study) to NYS service agencies and public benefits programs could be over $600M per year.6 The actual costs are likely to be far greater.
For myriad reasons, seniors are a primary target for fraudsters. Americans older than 50 account for 77% of personal financial assets in the United States7 and the population is growing. Roughly 10,000 Americans will turn 65 every day through 20308 and the population of people age 65 and older are expected to account for 18% of the nation’s population.9 Given the demographic factors, the scope of this problem can only be expected to grow.