RIA Compliance Blog
Over the last few years, more and more states have enacted laws to protect vulnerable adults from financial exploitation. These laws typically apply to the conduct of registered investment advisers, broker-dealers, and their employees. Two states – Iowa and Nebraska, have passed such legislation in 2021. Two other states – Florida and Texas – have added additional protections to already existing laws. The new laws are worth studying as they point to the general tenor and structure of the laws being adopted in other states.
For example, Iowa Sec. 502.801, titled “Financial Exploitation of Eligible Adults,” includes protection for adults over 65 and certain other “dependent adults.” The law requires all broker-dealers or investment advisers to provide vulnerable adult training for its employees “appropriate to the job responsibilities” of the employee. The training must occur within one year of the employee’s hire date and must include information on how to identify actual or attempted financial exploitation of eligible adults and how to report such exploitation to the regulatory authorities. “Financial exploitation” is defined to mean “any act or omission taken by a person to wrongfully and knowingly deprive an eligible adult of money, assets, or property, or to obtain control over or otherwise use, convert, or divert the benefits, property, resources, or assets of the eligible adult by intimidation, deception, coercion, fraud, extortion, or undue influence.”
The statute permits, but does not require, certain actors to report any reasonably suspected exploitation to the securities administrator, which is the Securities and Regulated Industries Bureau of the Iowa Insurance Division (“the Bureau”). Any such report made reasonably and in good faith cannot form the basis of civil or administrative liability by the person or company making the report. Those authorized to make such reports, and therefore able to take advantage of the civil and administrative immunity provisions, are any broker-dealer, investment adviser, or any individual who has received the required training.
The same list of actors may permissively give notice of suspected or attempted exploitation to a third party that the victim has previously designated to receive such information. This would include, for example, anyone designated by the customer on a properly drafted and executed “trusted contact” form. The law prohibits disclosure to any previously designated third-party if that third party is reasonably suspected of financial exploitation “or other abuse” of the eligible adult. Any qualified professional who reports to a third party of the type permitted by the statute is also immune from civil or administrative liability as long as they have complied with the notification section.
In contrast to the permissive disclosure provisions, the law requires any broker-dealer, investment adviser, or individual who has received the training to initiate an internal review of the circumstances surrounding any proposed disbursement or other transaction that “will likely result in or contribute to the financial exploitation.”
The Firm may delay any potential transaction if it (or a qualified individual) reasonably believes, either during such investigation or after it is completed, that the requested transaction is likely to result in or contribute to the exploitation, provided the securities administrator and all other authorized persons listed on the account are notified immediately of the delay. While the term “immediately” is not defined, the notification should be made as soon as possible, and no notification made more than two business days after the transaction is delayed will be sufficient to bring the notifying person or entity within the protections of the law. If the delay of the transaction occurs prior to completion of the internal review, the firm or eligible person must continue the review and provides updates to the Bureau upon request. Any delay or deferral of the transaction will expire upon the earlier of (a) a determination that the transaction will not result in or contribute to financial exploitation, or (b) fifteen days.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, and issuers of securities, among others. Our Investment Adviser Group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our Investment Adviser Practice Group page for more information.