Over the last few years, the securities industry has seen increased efforts from the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and other state and federal regulatory authorities, to generally increase protections afforded to senior investors and prevent financial exploitation of seniors. Most recently, Minnesota enacted the Safe Seniors Financial Protection Act.
The Safe Seniors Act
The Safe Seniors Act follows model legislation proposed in February, 2016 by the North American Securities Administrators Association (NASAA) known as the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation. So far, 19 states have enacted legislation or regulations based on the NASAA Model Act. Minnesota is the latest to do so. The Safe Seniors Act became effective on August 1, 2018.
The Safe Seniors Act closely follows the NASAA Model Act and mirrors efforts by FINRA and the SEC, which aim to make it easier for broker-dealers and investment advisers to report and prevent financial exploitation against seniors and vulnerable adults. The Safe Seniors Act allows broker-dealers and investment advisers: (1) to place temporary holds on withdrawals and transfers of funds for senior investors and vulnerable adults, and (2) to notify a trusted third party about suspected fraud and/or financial exploitation.
Temporary Holds – Minn. Stat. 45A.06-07
The Safe Seniors Act permits a broker-dealer or investment adviser to “delay a disbursement from or place a hold on a transaction” involving an account held by a senior investor (aged 65+) or vulnerable adult. The provision applies where the broker-dealer or investment adviser “reasonably believes, after initiating an internal review… that the requested disbursement or transaction may result in financial exploitation[.]”
The section is similar to FINRA Rule 2165 (Financial Exploitation of Specified Adults), which permits member firms to place temporary holds on disbursement of funds where there is a reasonable belief of financial exploitation.
Notification of “Reasonably Associated” Third Parties – Minn. Stat. 45A.02-05
The Safe Seniors Act provides broker-dealers and investment advisers with another tool to fight financial exploitation. Where a broker-dealer or investment adviser reasonably believes financial exploitation of an eligible adult may have occurred or is likely to occur, the broker-dealer or investment adviser “may notify a third party reasonably associated with the eligible adult.” In the event the broker-dealer or investment adviser does so, they are “immune from administrative or civil liability that might otherwise arise from the disclosure.”
The section provides state protections for a broker-dealer or investment adviser who informs a “trusted contact person” of potential financial exploitation, as permitted by FINRA Rule 4512.