Senior Safe Act Incentivizes Reporting Financial Exploitation of Seniors

The U.S. House of Representatives recently passed a bill aimed at protecting older adults from financial scams, but it is not the first piece of legislation to tackle the issue. 

The Senior Safe Act, which became federal law on May 24, 2018, was designed to encourage reporting of financial exploitation of senior citizens, explained Lori Schock, the director of investor education and advocacy at the Securities and Exchange Commission, during a Thursday webinar about the legislation hosted by the Financial Industry Regulatory Association.  

“It gives certain individuals and financial institutions immunity from liability in any big civil or administrative proceedings for reporting potential exploitation of senior citizens to certain entities if certain conditions are met,” said Schock. 

If staff at a financial institution has completed the appropriate training, then that firm can receive immunity when reporting suspected financial exploitation, which extends to supervisors, as well as employees on the compliance and legal teams, she explained. The immunity also applies to covered registered representatives, registered investment advisers and insurance producers affiliated or associated with the financial institutions. 

At the State Level 

Because not every state had passed such a rule, investment advisory firms did not have a safe harbor for certain aspects of the FINRA rules, according to Rich Szuch, the enforcement chief for the New Jersey Bureau of Securities.  

“We knew that there was a need to put together a model act that states around the country could use to create their own legislation, and in 2016, [the North American Securities Administrators Association] released its model legislation to protect vulnerable adults from financial exploitation,” said Szuch. “We call it the NASAA Model Act.” 

He said about 40 states have adopted its basic structure, but due to the different political preferences in each jurisdiction, not all states adopted laws identical in structure to the NASAA Model Act. 

Risks for Older Americans 

Measures like these have been put in place to protect the elderly because older adulthood poses unique risks to scam susceptibility and financial decisionmaking, said Olivia Valdes, a senior researcher at the FINRA Investor Education Foundation.  

As people age, they face normative and disease-related changes in cognition, reported Valdes. Even those subtle changes in cognition can impact decisionmaking, literacy and scam susceptibility. In fact, between 30 and 40% of older adults experience suboptimal financial decisionmaking. Mismatches between memory skills and perception of those skills tend to result in poor financial decisionmaking. 

Additionally, Valdes said that social isolation had a big effect on divorced and widowed adults. They tended to engage with, and lose money to, scams more often than those living with a spouse.  

The method of contact was important, too: Individuals who were approached online or via social media were much more likely to both engage with a scam and to lose money.  

Scams are clearly an issue top of mind for SEC officials, with an SEC task force on the matter proposed as part of the National Senior Investor Initiative Act of 2023, which heads to the Senate next.