Senior Investor and Vulnerable Adult Clients: Regulations and Best Practices to Keep Your Firm and Your Clients Protected

The challenge of diminished capacity presents a major risk to your clients and their families if they are not prepared. It also presents a risk to the firm if you are not aware of how to address these issues.  As the number of vulnerable investor exploitation claims grows, FINRA and the SEC have increased their scrutiny of firms providing inappropriate recommendations to vulnerable investors.

The result: firms must evaluate the risk of vulnerable investor financial exploitation to their clients, insure they have adequate Policies and Procedures, and provide training for their staff.

What You Should Do:

One of the best ways a firm can protect itself and its vulnerable investors is to comply with regulations and use best practices to determine suitability.  When considering best practices, educating employees and clients is a crucial component to preventing exploitation. Employees should be trained to:

  • Recognize the investment needs of vulnerable investors
  • Ask specific questions to determine, beyond a normal suitability determination, based on common elder investors’ issues:
  • Liquidity needs (upcoming expenses such as a grandchild’s college tuition or a known illness)
  • An appropriate third party to take part in discussions beforehand and in case debilitating issues arise.
  • Plans for estate and special needs
  • Recognize red flags of vulnerable investor exploitation
  • Document concerns and traits that indicate cognitive decline or impairment
  • Escalate and report suspected activity/concerns
  • Know and understand state-specific regulations specifically concerning client disbursement holds

How Oyster Can Help:

Developing policies and procedures and training unique to your firm is time consuming, requires a deep knowledge of the subject and regulatory environment, and can have costly repercussions if it is not done correctly. Oyster Consulting has developed comprehensive Written Supervisory Procedures and Policies and Procedures that, once customized to your firms’ products and lines of business, will enable you to mitigate risks associated with vulnerable investor clients. When exploitative instances occur, Oyster’s Policies & Procedures provide guidance for identifying, reporting to appropriate state agencies, monitoring and resolving these events. Our training modules are thorough, easy to use, and can be quickly customized to your firm’s requirements. The collective knowledge of Oyster’s 50+ consultants will save your firm time and provide the assurance that you are better protected.  For more information on how Oyster Consulting can help your firm with its compliance needs, complete our contact form and one of our Relationship managers will be happy to help you.


Author:  Bill Reilly, Associate Director, Oyster Consulting LLC;   Bill assists industry firms with developing Written Supervisory Procedures (WSPs) for broker-dealers and Policies and Procedures (P&Ps) for investment advisers, as well as providing in-house firm training for dealing with vulnerable adults and senior clients. Included in these WSPs and P&Ps are procedures for complying with state regulations for addressing client disbursement holds when financial exploitation of the client is suspected. Bill acts in an outsource capacity to assist firms in meeting their branch office examination cycles, leveraging his examination expertise and relationships with state and federal regulators and self-regulatory organizations. Bill also conducts FINRA Rule 3120 Examinations, annual examinations for investment advisers, third party independent reviews required by regulatory settlements and acts as an expert witness.