Development & Rationale
Overview of Recent Developments
Section 1. Short Title
Section 2. Definitions
Section 3. Governmental Disclosures
Section 4. Immunity for Governmental Disclosures
Section 5. Third-Party Disclosures
Section 6. Immunity for Third-Party Disclosures
Section 7. Delaying Disbursements
Section 8. Immunity for Delaying Disbursements
Section 9. Records
NASAA Model Legislation or Regulation to Protect Vulnerable Adults from Financial Exploitation | Adopted January 22, 2016
Legislative Text & Updated Commentary
for the 2021-22 Legislative Session
Development and Rationale
NASAA Senior Issues and Diminished Capacity Committee
The Model Act originated as an initiative of NASAA’s Committee on Senior Issues and Diminished Capacity (the “Seniors Committee” or “Committee”).[i] The Seniors Committee was formed in 2014 by NASAA and its members. In addition to its seminal policy work of developing the Model Act in 2016, the Committee has sought to raise awareness on the issue of financial exploitation of older and vulnerable adults, as well as the effects of diminished capacity on financial decision making among both investors and industry professionals. The Committee has also facilitated research to gain a better understanding of these issues, as well as provided tools and educational materials to its members and industry participants who may see cases of financial exploitation or diminished capacity in their day-to-day interactions with clients. In the past several years, the Committee released the following materials to improve the understanding of issues that may impact older and vulnerable adults in the securities industry:
- a toolkit to educate members on when and how to report instances of suspected financial exploitation;[ii]
- a toolkit to help enable members to form a strong multi-disciplinary team to address issues of financial exploitation;[iii]
- research that examined the issue of diminished capacity in financial professionals and identified items for firms to consider, including risk assessment, supervision, training, and succession planning;[iv] and
- a NASAA-SEC-FINRA training on addressing and reporting financial exploitation of senior and vulnerable adult investors.[v]
NASAA believes the most effective way to address the protection of seniors and vulnerable adults is through a holistic approach, and so the work of the Seniors Committee is informed by an Advisory Council drawing from representatives in the financial services industry and academia, as well as among regulatory agencies and advocates of the elderly.[vi]
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation
On September 29, 2015, NASAA released a draft of the proposed Model Act for a 30-day public comment period.[vii] The Seniors Committee received and considered comments from various interested parties and considered a similar proposal set forth by the Financial Industry Regulatory Authority (“FINRA”) in FINRA Regulatory Notice 15-37.[viii] The Committee further reviewed the Model Act in late 2015 and made several revisions to the proposal. On December 22, 2015, the NASAA Board of Directors approved the Committee’s request to submit the proposed Model Act to the NASAA membership for consideration. On January 22, 2016, NASAA members voted to approve the Model Act.
The NASAA Model Act applies to broker-dealers and investment advisers, including certain qualified individuals (e.g., broker-dealer agents, investment adviser representatives, and persons serving in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser). The provisions of the Model Act are designed to be statutorily adopted by a jurisdiction as part of its existing securities laws.[ix] The Model Act has five core features that, when taken together, clarify and more closely align the interests and responsibilities of financial professionals, regulators, and law enforcement agencies regarding the reporting and prevention of senior financial exploitation. These features are:
- A mandatory reporting requirement applicable to qualified individuals of broker-dealers and investment advisers;
- Notification to certain third-parties of potential financial exploitation with advance consent of the investor;
- The authority to temporarily delay disbursement of funds;
- Immunity from civil and administrative liability for reporting, notifications, and delays; and
- Mandatory record-sharing in cases of exploitation with law enforcement and state adult protective services agencies.
The commentary in each section of the Model Act explains the rationale for these provisions and the interplay between them. The endnotes to this report provide additional information about many of the policy recommendations embodied in the Model Act.
[i] For more information about the NASAA Senior Issues and Diminished Capacity Committee, See https://serveourseniors.org/about/policy-makers/nasaa-committee-on-senior-issues-and-diminished-capacity/.
[iv] For NASAA members See www.nasaa.org under Members Only. For non-members, See https://www.nasaa.org/wp-content/uploads/2017/06/BD-Study-of-Senior-Practices-and-Procedures_06152017.pdf.
[v] See https://www.nasaa.org/57803/nasaa-sec-and-finra-offer-free-resource-to-securities-firms-to-assist-in-detection-prevention-and-reporting-of-financial-exploitation-of-seniors/?qoid=current-headlines.
[vi] For more information about the Advisory Council to the NASAA Senior Issues and Diminished Capacity Committee, See https://serveourseniors.org/about/policy-makers/advisory-council/.
[vii] See Notice of Request for Comments Regarding NASAA’s Proposed Model Legislation or Regulation to Protect Vulnerable Adults from Financial Exploitation (Sept. 29, 2015), available at https://www.nasaa.org/37301/notice-of-request-for-comments-regarding-nasaas-proposed-model-legislation-of-regulation-to-protect-vulnerable-adults-from-financial-exploitation/?qoid=request-for-comment.
[viii] See FINRA Regulatory Notice 15-37, Financial Exploitation of Seniors and Other Vulnerable Adults (Nov. 30, 2015), available at https://www.finra.org/rules-guidance/notices/15-37.
[ix] Two states – Vermont and Oklahoma – have adopted the Model Act through agency regulation.