Ethics Center: Sales & Marketing

Advisor Alert: Adopt Hands-On Strategies for Managing Vulnerable Clients

Many financial-services professionals claim the Department of Labor’s new Fiduciary Rule will harm their firms, while restricting consumer access to financial advice. Not surprisingly, the immense amount of discussion about the rule has overshadowed nearly every other issue save one: senior financial exploitation.

Consequently, as the new Fiduciary Rule has moved through the enactment process, state and federal regulators have also taken steps to raise awareness of senior exploitation, while also making it easier for financial advisors to place a temporary hold on money disbursements if they suspect client incapacity (FINRA proposed Rule 2165.)

Rule 2165 comes none too soon, as Americans are getting older and developing cognitive impairments at an increasing rate.  In fact, one study claims the number of Americans living with Alzheimer’s disease will triple to 16 million by 2050.

At the same time, two trends are increasing the senior exploitation risk:

  • First, the movement from defined-benefit pension plans to defined-contribution arrangements has led to more seniors participating in the securities markets.

  • Second, millions of seniors lost money in the 2008 economic meltdown and are now desperate to play catch-up, making themselves vulnerable to financial hucksters.

When exploitation occurs, seniors aren’t the only parties to get hurt. The entire financial-services industry is harmed as well, experts say. That’s because financial advisors found guilty of exploiting their senior clients are subject to civil and criminal penalties. Even those who do nothing wrong, but simply fail to report an instance of abuse may be punished as well.

When financial exploitation occurs, victims will clearly never trust the financial-services industry again. Plus they’ll tell friends and family members about it, which will erode the industry’s reputation, impeding its ability to bring in new clients. A slowdown in new business will have a financial impact on the industry, as will a surge in client defections.

Clearly, it behooves all industry players to prevent senior financial abuse before it occurs. Financial institutions have a large role in this regard. By implementing standards, tracking systems, and advisor training, they can have a big impact on nipping such problems in the bud. But financial advisors, too, can play a positive hands-on role at the point of sale or service.

Here are eight tangible strategies that that will help advisors keep their clients safe:

  1. Always complete the firm’s risk profiler in order to fully understand a senior client’s financial status, investment goals, health issues, and more.

  2. Stay in close touch with clients (no less than once a year) in order to keep tabs on their financial and health status. Also, be sure to regularly update client account documents.

  3. Get familiar with their firm’s vulnerable-client guidelines. When a client passes the threshold, immediately inform a supervisor or compliance officer within the firm.

  4. Discuss with clients their wishes for how they’d like their investments to be managed should their health, financial status, or spending needs change.

  5. If a senior client requests access to an unsuitable investment, advise the person in writing about why this is a problem. Then have the client sign the paper and save it to the file.

  6. Watch for a pattern of irregular or large account withdrawals. Be prepared to query the client to make sure the person knows what’s going on.

  7. Complete all firm training regarding how to work appropriately with impaired clients.

  8. Understand the firm’s supervisory escalation procedure in the event a client begins showing signs of diminished capacity. Initiate the process as soon as this occurs.

By staying hands-on in the above manner, financial professionals will not only provide an invaluable service to their senior clients and their families, they will also prevent E&O insurance problems for themselves down the road. Good luck!

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.