Brokerage Firms Reminded – Senior Investors Must Be Treated Fairly

SEC Staff and FINRA Issue Report on National Senior Investor Initiative
04/15/2015 01:00 PM EDT

With the Social Security Administration estimating that each day for the next 15 years, an average of 10,000 Americans will turn 65, the staff of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) today issued a report to help broker-dealers assess, craft, or refine their policies and procedures for investors as they prepare for and enter into retirement.

The National Senior Investor Initiative report includes observations and practices identified in examinations that focused on how firms conduct business with senior investors. The examinations by the SEC’s Office of Compliance Inspections and Examinations (OCIE) and FINRA focused on the types of securities purchased by elderly investors, the suitability of recommended investments, training of brokerage firm representatives, marketing, communications, use of designations such as “senior specialist,” account documentation, disclosures, customer complaints, and supervision.

According to the most recent U.S. Census Bureau data, in 2011, more than 13 percent of those living in the United States, or more than 41 million people, were 65 or older. By 2040, that number is expected to exceed 79 million, more than twice as many as in the year 2000. Given that, OCIE and FINRA staff are keenly focused on issues related to senior investors and regard compliance with laws, rules, and regulations applicable to senior investors to be a high regulatory priority. At a time of historically low yields on traditional savings accounts and more conservative investments, OCIE and FINRA staff are concerned that some broker-dealers may be recommending riskier and possibly unsuitable securities to senior investors looking for higher returns and may be failing to adequately disclose the terms and risks of the securities they recommend.

Andrew J. Bowden, OCIE’s Director, said, “Seniors are more dependent than ever on their own investments for retirement. Broker-dealers are developing and offering a variety of new products and services that are intended to generate higher yields in a low interest rate environment. It is imperative that firms are recommending suitable investments and providing proper disclosures regarding the related terms and risks.”

“With the dramatic increase in the population of our nation’s seniors, it is critical that securities regulators work collaboratively to make sure that senior investors are treated fairly. The culture of compliance at firms is key to ensuring that seniors receive suitable recommendations and proper disclosures of the risks, benefits, and costs of any investments they are purchasing,” said Susan Axelrod, FINRA Executive Vice President, Regulatory Operations.