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


Section 5. Third-Party Disclosures

If a qualified individual reasonably believes that financial exploitation of an eligible adult may have occurred, may have been attempted, or is being attempted, a qualified individual may notify any third party previously designated by the eligible adult.  Disclosure may not be made to any designated third party that is suspected of financial exploitation or other abuse of the eligible adult. 


Commentary:

To the greatest possible extent, seniors and other vulnerable adults should themselves be making decisions about whom a financial services professional should contact in the event of suspected financial exploitation. Section 5 of the Model Act provides that where a qualified individual would be required to make a report pursuant to Section 3, the qualified individual may also make a notification to the same extent to any such person as has previously been designated by the eligible adult. The disclosure may not be made, though, if the qualified individual suspects the designated person of being involved in, or aware of, the suspected financial exploitation or otherwise suspects the designated person as having engaged in abuse of the eligible adult.

A goal of the Model Act is to encourage seniors and other vulnerable adults to designate persons in whom they trust to receive notices of potential financial exploitation. Further, broker-dealers and investment advisers should do what they can to encourage seniors and other potentially vulnerable clients to identify appropriate points-of-contact for situations such as suspected exploitation or diminished capacity in advance of its occurrence. By providing immunity only for the notification of third parties that have been previously designated by the client, Section 5 will encourage financial professionals to have these important conversations prior to any potential exploitation while empowering the client with the decision of the person to be contacted.[i]

In addition, the National Adult Protection Service Association (“NAPSA”) notes that obtaining a trusted contact person on a non-institutional customer account provides “a great resource for investor protection and the benefits are clear.”[ii] NASPA notes that despite FINRA Rule 4512’s requirement that a broker-dealer make reasonable efforts to obtain a trusted contact, 25% or less of broker-dealer customers designate a trusted contact. NAPSA recommends additional efforts be made to increase this number.

NOTES

[i] NASAA believes financial services firms should be doing more to work with seniors and other potentially vulnerable clients to identify appropriate third-party contacts ahead of any suspected exploitation or diminished capacity (for example, at the time an account is opened). Under Section 5, a disclosure may not be made to a third party if the qualified individual suspects the third party of being aware of or involved in the financial exploitation. This is important because research indicates that a high proportion of reported senior financial exploitation is perpetrated by friends or family members.

[ii] See NAPSA Response to FINRA Regulatory Notice 20-34 (Dec. 4, 2020), available at https://www.finra.org/sites/default/files/NoticeComment/12.3.2020%20-%2020201204%20-%20NAPSA%20Comments%20-%20FINRA%20Regulatory%20Notice%2020-34.pdf.

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