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Protecting Elderly Investors from Financial Exploitation: Questions to Consider

Rick A. Fleming, Investor Advocate

The American Retirement Initiative Winter Summit<br/>Washington, D.C.

Feb. 5, 2015

Thank you, Keith [Green], for the invitation to speak today, and thanks to the others who have worked so hard to organize this important event. I am grateful for the opportunity to tell you today about my role as the SEC’s first official Investor Advocate, why my office is particularly interested in protecting the elderly from financial exploitation, and what we intend to do about it.

Of course, I need to remind you that the views I express are my own and do not necessarily reflect those of the Commission, the Commissioners, or Commission staff. If you have any comments or questions about my views or the work of my office, I’ll save time for some discussion at the conclusion of my remarks.

Nearly one year ago, on February 24, 2014, Chair Mary Jo White swore me in to serve as the Commission’s first Investor Advocate, thus establishing the Office of the Investor Advocate.

The basic purpose of the Office of the Investor Advocate is to help ensure that the interests of investors are appropriately considered as decisions are being made and policies are being adopted at the Commission, at self-regulatory organizations such as FINRA and the stock exchanges, and in Congress.

We provide a voice for investors in a variety of ways. Among other things, our office is responsible for reviewing rulemakings proposed by the Commission and self-regulatory organizations to evaluate the impact of these rules on investors. We are also responsible for reviewing existing rules and statutes, and we will recommend changes that benefit investors. In addition, we are required to identify problems that investors have with investment products and financial service providers.[1]

The Office of the Investor Advocate is part of the SEC, and it is a privilege to serve alongside dedicated public servants who spend each day protecting investors. However, my office is designed to remain somewhat independent from the rest of the Commission. As required by law, I file two reports per year with Congress, and those reports go to Congress without any prior review by anyone outside my office.[2] In some respects, my role is to provide a critique of my own agency. Nonetheless, I can assure you that Chair White and the Commissioners have been supportive of my office, and we are all working together to make sure my staff has a significant and constructive role in the policymaking process.

If you stop and think about it, my mandate to speak for investors covers a very broad range of potential issues. And, as a relatively new office that continues to build out a small staff, we cannot fully analyze every possible issue impacting investors. Therefore, to maximize our effectiveness, we have to concentrate on a manageable number of critical issues, and we have selected six key issues that are our current areas of focus.

One such issue is the critical need to protect elderly investors from financial exploitation. More specifically, we are looking for ways to give financial service professionals more effective tools to protect clients whenever an adviser or registered representative suspects financial or other abuse of a vulnerable client.

How did this issue make the cut for our very short list of priorities? Because we recognize elder financial abuse as a major problem that is expected to grow dramatically with the aging of our population, and because we see a constructive role that the Commission can play in protecting elderly investors.

At the risk of repeating the first panel, whose topic was “The Link between Diminished Capacity and Elder Financial Abuse,” let me remind you of a few statistics to illustrate the growing problem. According to my fellow Kansan, Kathy Greenlee, the Assistant Secretary for Aging at the U.S. Department of Health and Human Services, about 10,000 Baby Boomers will celebrate their 65th birthday every day from now until 2030.[3] If we project further out to the year 2050, people aged 65 and older are expected to comprise 20 percent of the total U.S. population, according to the National Center on Elder Abuse. That’s one in five Americans.[4]

Moreover, the fastest growing segment of America’s population consists of those 85 and older. In 2010, these older Americans numbered 5.8 million people. By 2050, their ranks are projected to grow to 19 million.[5]

As you know, it would be wrong to equate age alone with dementia or diminished capacity. We must also distinguish between the healthy aging process and diseases that may lead to dementia. However, the greatest known risk factor for one of those diseases—Alzheimer’s—is increasing age.[6] Thus, with the aging of the Baby Boomers, we can anticipate dramatic growth in the prevalence of Alzheimer’s disease.

According to the Alzheimer’s Association, an estimated 5.2 million Americans had Alzheimer’s disease in 2014, including approximately 200,000 individuals younger than age 65 who had younger-onset Alzheimer’s. By 2050, the estimated number of people age 65 and older with Alzheimer’s disease will nearly triple, to 16 million, absent medical breakthroughs to prevent, slow, or stop the disease.[7]

Research indicates that cognitive impairment, whether brought on by Alzheimer’s or another cause, reduces the financial capacity to make decisions, increasing the risk of financial exploitation.[8] It’s not hard to see how diminished capacity and increasing dependence on others can make people more vulnerable to financial exploitation and other forms of elder abuse.

In addition to the aging of the population, the risk of financial exploitation is compounded by another socio-economic trend—the shift from defined benefit retirement plans, where a financial professional manages the assets in a pension fund, to defined contribution plans, where each individual investor controls the assets in his or her 401(k) or other retirement account. Up until 1985, the aggregate value of defined contribution plans was less than half the value of defined benefit plans.[9] By 2012, however, defined contribution plans were more than 50 percent larger than the aggregate size of defined benefit plans.[10] Due to this shift, the Baby Boomer generation will exercise far greater control over their retirement assets than preceding generations.

Sadly, then, in the coming years we can expect to see greater numbers of seniors begin to suffer from diminished capacity while they remain in control of their retirement assets. The resulting harm is foreseeable because these assets that were built up over a lifetime of hard work will be a very tempting target for the unscrupulous. And, judging from my experience as a white collar criminal prosecutor, the unscrupulous will comprise not only strangers operating as scam artists, but also unethical caregivers, family members, affinity group members, and financial service providers.[11]

Unfortunately, this is another area where it is easy to define the problem, but it is more difficult to find solutions. For my part, the question really comes down to, “What can the SEC, self-regulatory organizations, or Congress do to mitigate this growing risk of financial exploitation?”

As I’ve considered this question, it seems that one thing we can do is acknowledge and support the valuable role of financial services professionals in protecting their clients. Your second panel this morning discussed “The Role of the Trusted Advisor in the Retirement Planning Process,” and it is my belief that the trusted advisor has an indispensable role in protecting investors not only as they plan for retirement, but particularly as they begin to face the special challenges and dangers of diminished capacity.

Indeed, financial professionals often find themselves on the front lines. Many have known their clients for years, and they may be among the first to recognize signs of diminished capacity and the red flags of financial exploitation. With increasing frequency, financial professionals witness unfolding acts of financial exploitation, but they often feel limited in their ability to protect their clients. For example, financial professionals are expected to comply with their clients’ requests to withdraw or transfer assets, and rigid compliance with this basic rule would prevent a financial professional from blocking transactions that appear to be exploitative or outright scams. Financial professionals are also subject to privacy laws that limit their ability to contact a client’s family members to discuss their concerns.

To remove these impediments, financial industry representatives have begun seeking some reforms, including the ability to “pause” transactions in which they suspect financial abuse. As precedent, these advocates point to a law that the State of Washington adopted in 2010. It allows a financial institution to refuse a transaction whenever the institution reasonably believes that financial exploitation of a vulnerable adult may have occurred or is being attempted.[12]

The State of Missouri is considering similar legislation,[13] and I am pleased that all state securities regulators, under the auspices of the North American Securities Administrators Association (“NASAA”), are studying a number of reforms in a coordinated fashion.[14] It is important for the state regulators to show leadership in this area because seniors turn first to their state and local governments for assistance, and the challenge of addressing elder abuse varies from state to state.

For me, however, the question remains whether similar measures should be adopted at the federal level. More specifically, should federal law allow a financial adviser to refuse or delay a transaction—contrary to the explicit instructions of the client—when it appears that the client is being defrauded or exploited?

I am inclined to answer “yes.” However, this simple question opens up a web of interrelated questions that we must also consider. Here are just a few of them:

  • How long should the “pause” last? For example, the Washington statute permits a delay of ten business days for a securities-related transaction.[15] Is that a long enough time for the local authorities to intervene with some sort of legal action?
  • How much harm could be caused by such a pause? For example, a delay in a withdrawal of funds may cause serious difficulties for the client, such as a missed rent payment, and it is easy to imagine a scenario where a firm or financial adviser delays a transaction out of self-interest, such as preventing a transfer of an account to a competing firm. How could we minimize the risk of harm and avoid unintended consequences?
  • If a firm delays a transaction, should it be required to disclose its suspicions to the government? If so, to which governmental body in particular? To Adult Protective Services? Through a SARS report? Or should a new reporting mechanism be designed? Whatever the mechanism, are we confident that the government authority or authorities receiving the reports will have the resources to respond promptly and effectively to stop the financial exploitation?
  • Who should have the authority to decide whether to delay a transaction? Should it be an individual financial adviser, a branch manager, compliance officer, committee, or some other authority?
  • What should be the legal threshold for allowing a firm to refuse to follow a client’s instructions? Should it be a “reasonable belief” of financial exploitation, or should a higher threshold be required?

This issue also highlights an overarching challenge we must grapple with: How can we respect each person’s right to self-determination while preventing his or her financial self-destruction? In other words, how do we protect elderly investors from exploitation, while preserving the right of all investors, including the elderly, to make their own decisions about how to use their own money—even if those decisions may seem questionable, misguided, or outright foolish to you, to me, or to the investor’s financial professional?

As you can see, these issues that seem so simple on the surface can actually be quite complex. But if the challenges are great, so is the urgency, and so are the potential benefits of good solutions. That is why we need to continue engaging in informed discussion, and it is why your participation today is so important.

My office welcomes your thoughts. Please feel free to reach out to me to express your views and share any proposals you may have. We are committed to working with you to find solutions to protect the aging population from financial exploitation.

Thank you. I would be happy to take your questions.


[1] Exchange Act § 4(g)(4), 15 U.S.C. § 78d(g)(4).

[2] Exchange Act § 4(g)(6), 15 U.S.C. § 78d(g)(6).

[3] Kathy Greenlee, Remarks to the SEC Investor Advisory Committee, July 10, 2014. For an archived webcast, see See also DOJ Press Release, Justice Department, Health and Human Services Call for Action to Address Abuse of Older Americans (July 9, 2014), available at

[4] National Center on Elder Abuse, Administration on Aging, Department of Health and Human Services, Statistics/Data [last visited January 29, 2015], available at

[5] Id.

[6] Alzheimer’s Association, What Is Alzheimer’s? [last visited Jan. 30, 2015], available at

[7] Alzheimer’s Association, Alzheimer’s Facts and Figures, [last visited Jan. 30, 2015],; NCEA, Research Brief, How at Risk for Abuse Are People With Dementia? (2013), available at

[8] NCEA, The Elder Justice Roadmap: A Stakeholder Initiative to Respond to an Emerging Health, Justice, Financial and Social Crisis, (2014) at 3, available at

[9] Dep’t of Labor, Emp. Benefits Sec. Admin., Private Pension Plan Bulletin Historical Tables and Graphs, at 13 Table E11, June 2013,

[10] As of 2012, assets within defined contribution plans totaled nearly $4.3 trillion, as compared to $2.7 trillion in defined benefit plans. Id.

[11] In a 2012 survey, a diverse group of experts identified the top three financial exploitation problems for seniors as: (1) “theft or diversion of funds or property by family members” (79 percent); (2) “theft or diversion of funds or property by caregivers” (49 percent); and (3) “financial scams perpetrated by strangers” (47 percent). Investor Protection Trust, Survey: Family Members, Caregivers and Swindlers are Top Financial Exploiters of Older Americans (Aug. 15, 2012),

[12] Wash. Rev. Code Ann. § 74.34.215(1).

[13] See Missouri Secretary of State Press Release, Kander, Schmitt Announce Bipartisan Legislation to Protect Seniors from Financial Fraud, January 14, 2015, available at

[14] See NASAA Press Release, New NASAA Initiative Focuses on Senior Investor Issues, Aug. 19, 2014, available at

[15] Wash. Rev. Code Ann. § 74.34.215(5)(a).

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