U.S. broker-dealers still have a good deal of work to do to improve their dealings with senior clients, according to the preliminary results of compliance exams carried out by the North American Securities Administrators Association (NASAA) published on Monday.
The NASAA initiative, which included 62 compliance exams, focused largely on activity in senior client accounts and aimed to gather information from firms on their policies, procedures, and training related to seniors and other potentially vulnerable customers.
Overall, the review found that only about 39% of firms had established written procedures addressing all of its concerns in this area, and 20% of the exams found that firms had not established written procedures addressing any of the areas.
In particular, the regulators found potentially unsuitable recommendations to senior investors were identified in 10% of the exams. Of these instances, the product most commonly associated with potentially unsuitable recommendations is variable annuities. “There is a general concern with the sale of variable annuities to senior clients or those approaching retirement because of the penalty rates associated with early withdrawals,” NASAA says in a summary report of preliminary results.
Potential suitability issues were also identified in connection with the sale of exchange-traded funds (ETFs), primarily non-traditional ETFs such as leveraged and inverse ETFs. About 30% of the suitability concerns involved equities.
“In the exams that evinced suitability concerns, there was no correlation with lack of training as the suitability concerns almost all occurred in exams of firms that actually required training on both senior investor suitability and communicating with seniors,” the NASAA report says.
“This finding should serve as a reminder to the industry that the mere existence of a training program, even a mandatory one, may not be enough if the training program is not adequately designed to effectively train representatives, if supervisors rely too heavily on the training, or if a firm ineffectively screens candidates at the hiring stage,” the report adds.
The regulators also found that the majority of investor complaints continue to come from senior clients. “The rate of complaints filed by senior clients is disproportionately high,” the report says.
This should remind firms that “improved communications with senior clients, and documentation of those communications, will not only serve these clients but will also serve an important risk-management purpose.”
The NASAA review also found that only 24% of firms are requiring verification of senior clients’ profile information more frequently than every three years; and, that there appears to be limited development of “trusted contact forms” at firms, and very limited use of the forms even after they are developed.
As well, about 62% of the exams found that firms have either established a formal committee, or designated at least one person, to focus on senior investor issues.
“The preliminary findings from the coordinated examinations indicate that efforts to highlight the need for procedures that focus on senior investor matters have been successful at effecting change, but continued progress is necessary to best serve our aging population,” said NASAA president and Maine Securities Administrator, Judith Shaw, in a news release.
“The preliminary findings indicate that many broker-dealers are taking valuable steps to develop procedures that are mindful of the common issues facing senior clients, however, they also identified areas where improvement is needed,” Shaw added.
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