18.3 Senior & Vulnerable Adult Protection

Protecting senior investors and vulnerable adults from financial exploitation is a critical regulatory priority. NASAA and FINRA have established specific rules to help firms identify and respond to suspected exploitation.

NASAA Model Act to Protect Vulnerable Adults

The NASAA Model Act provides a framework for states to adopt rules protecting seniors and vulnerable adults from financial exploitation.

Key Definitions

Eligible Adult: Person 65+ OR person subject to state adult protective services

Financial Exploitation: Wrongful taking, withholding, or misuse of funds/assets

Qualified Individual: Adviser, IAR, or person authorized to transact on client accounts

Trusted Contact Person: Person designated by client to be contacted in case of concerns

Adoption by States

As of 2026, most states have adopted the Model Act. NASAA's review found the Model Act has been "overwhelmingly successful" at protecting investors.

Trusted Contact Person

Purpose

A trusted contact is a resource for the firm when:

- Financial exploitation is suspected

- Client shows signs of diminished capacity

- Client cannot be reached about account activity

- There are concerns about the client's welfare

Key Points

Separate from POA: Not the same as power of attorney; no trading authority

Multiple Contacts: Clients may designate more than one trusted contact

Voluntary: Designation is encouraged but not mandatory

Can Be Changed: Client may add, change, or remove at any time

Information Only: Firm may share limited information; contact has no account authority

When to Contact

Firms may contact the trusted contact person to:

- Confirm client's contact information

- Inquire about client's health status

- Identify legal guardian, executor, or agent with authority

- Discuss concerns about possible exploitation

Temporary Holds on Disbursements

When Permitted

A firm may delay a disbursement from a client's account when:

Reasonable Belief: Reasonably believes financial exploitation has occurred, is occurring, or will be attempted

Affected Individual: Disbursement would affect eligible adult (65+ or subject to APS)

Documentation: Must document the basis for the hold

Notification: Must notify trusted contact person (if available)

Duration of Holds

Initial Hold: Up to 15 business days; Internal review; notify trusted contact

Extension: Additional 10 business days; Request from regulator or APS

Court Order: Longer if ordered; Court must authorize any further extension

FINRA Rule 2165

FINRA Rule 2165 (Financial Exploitation of Specified Adults) aligns with NASAA, permitting:

- Holds on disbursements

- Holds on securities transactions (in some cases)

- Up to 25 business days total hold period

- Required notification to trusted contact

Red Flags for Financial Exploitation

Signs of Potential Exploitation

Behavioral Changes: Sudden changes in financial behavior or patterns

Unusual Transactions: Large withdrawals, new payees, wire transfers to unknown recipients

Third-Party Involvement: New "friends," caregivers, or advisers making decisions

Client Confusion: Inability to explain recent transactions or account changes

Fear or Anxiety: Reluctance to discuss finances, signs of being coached

Physical Signs: Missing documents, changes in appearance or hygiene

Signs of Diminished Capacity

Memory Issues: Forgetting conversations, repeating questions

Confusion: Difficulty with time, place, or basic calculations

Decision-Making: Inconsistent or irrational financial decisions

Communication: Difficulty processing information or expressing thoughts

Emotional Changes: Unusual emotional responses, mood swings

Reporting Requirements

Mandatory Reporting (Many States)

Qualified individuals who reasonably believe exploitation has occurred, been attempted, or is being attempted must:

- Promptly notify Adult Protective Services

- Promptly notify state securities regulator

- Maintain documentation of observations and actions

Safe Harbor Protections

Good Faith Reports: Protected from liability for reporting suspected exploitation

Reasonable Holds: Protected for placing holds based on reasonable belief

Trusted Contact Communications: Protected for sharing information with trusted contact

Documentation Requirements

Observations: Document warning signs and concerns

Actions Taken: Steps taken in response to concerns

Communications: Contacts with trusted person, APS, regulators

Hold Records: Basis for hold, duration, resolution

Best Practices

Proactive Measures

- Request trusted contact designation early in relationship

- Document client's baseline cognitive function and behavior

- Train all staff on warning signs of exploitation and diminished capacity

- Establish clear procedures for escalating concerns

- Review accounts of senior clients more frequently

When Concerns Arise

1. Don't ignore warning signs

2. Document observations immediately

3. Involve compliance department

4. Contact trusted person if appropriate

5. Consider placing temporary hold

6. Report to APS and/or regulator when required

7. Protect client assets while investigation proceeds

On the Exam: Know that temporary holds can be placed for up to 15 business days (with possible 10-day extension) when exploitation is suspected. The trusted contact is NOT the same as power of attorney - the trusted contact has no authority over the account.

Key Takeaways

- Trusted contact persons provide additional protection layer

- Firms may place temporary holds (15 business days) on suspicious disbursements

- Extension possible with regulatory notification (additional 10 days)

- Mandatory reporting requirements exist in many states

- Safe harbor protections for good-faith actions

- Documentation of all observations and actions is essential