The International Organization of Securities Commissions (“IOSCO”) published a report on senior financial fraud. The report provides member states and financial regulators with guidance on protecting vulnerable senior investors.
The IOSCO report concludes that senior investors are more susceptible to fraud as a result of declining cognitive capacity, lack of financial literacy and social isolation, among other factors. The report urges member states to (i) strengthen protective measures focused on seniors, (ii) improve financial service providers’ employee training, and (iii) provide guidance on life planning issues, including arrangements for loss of capacity.
The report also issues recommendations for regulators and encourages the development of:
- educational programs and resources for senior investors;
- senior-focused specialists within existing assistance programs;
- research on risks and issues facing seniors; and
- guidelines and training programs for employees reviewing transactions conducted with senior investors.
Lofchie Comment: Securities firms would benefit from a common framework as to how to handle dealings with senior investors. On the one hand, firms must recognize that they face material liability in facilitating risky investments by seniors. On the other hand, many seniors are perfectly capable, control a lot of wealth, and have long investment horizons.
At a minimum, this means that firms need to be very cautious as to situations in which they may be deemed to exercise discretion or material influence over account decisions. Conversely, firms cannot refuse to comply with the trading instructions of wealthy clients simply because they are elderly. In negotiating this Scylla and Charybdis, firms will benefit from working jointly, along with regulators and interested organizations, in developing common rules of the road.