CFPB Recommends Seven New Guidelines To Protect Senior Citizens From Deceptive Financial Advisory Practices

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Today, the Consumer Financial Protection Bureau announced seven recommendations to help seniors avoid unfair, deceptive or abusive practices in the delivery of financial advice or the sale of financial products – and not a moment too soon. We’ve all heard of retirees being taken to free retirement seminars, where in exchange for a free meal, they are subjected to a high-pressure sales pitch recommending inappropriate products.  Senior citizens are often swayed by advisors using one of over 50 “senior specialist” designations of uneven quality. Some require no coursework, others require 18 months of coursework to complete. All consumers have a hard time distinguishing substantive from less substantial certifications, but senior citizens are particularly vulnerable to deception fraud. Having had time to amass more assets than younger consumers, they are a favored target for unscrupulous advisors. They may also be experiencing cognitive decline, making them even less able to evaluate the veracity of an advisor’s certifications. Now, the CFPB has stepped in to urge regulatory action for the protection of senior citizens. 

THE CFPB RECOMMENDS

  1. Better tools for transparency – online tools to verify and compare credentials
  2. Increased disclosure requirements
  3. Raising standards – requiring minimum testing and coursework requirements for senior designations

What are consumers supposed to do? 

Bear in mind that these are just recommendations, not regulations. Consumers must remain vigilant whenever they see any of the following red flags:

  1. Overly consistent returns offered – all investments have risk, and none of them go up consistently month over month. If it sounds too good to be true, it probably is
  2. Complex strategies – advisors may try to confuse you with jargon and sweep your concerns under the rug. Legitimate advisors should be able to explain how a proposed investment makes its return and the risks associated with the investment.
  3. Pushy salespeople – Reputable investment professionals should not engage in high-pressures sales tactics 
  4. Guarantees – all investments carry risk. Be wary of guarantees

Recommendations in detail

1. The SEC may wish to consider establishing a centralized tool through which senior  investors can verify a financial adviser’s designations.

2. The SEC may wish to consider establishing a mechanism to capture complaints  and enforcement actions against senior designation holders and consider reporting the data to designation providers consistent with and to the extent allowed by the Commission’s legal obligations.

3. Congress and the SEC may wish to consider requiring financial professionals who  utilize a senior designation to provide a disclosure to clients and prospective clients.

4. Policymakers may wish to consider providing minimum standards for acquiring senior designations and the amount of training necessary to earn the designation, including requiring standardized testing and specific number of units of education. This would improve the consistency and quality of designations. Policymakers may also wish to consider prohibiting the use of senior designations issued by any non-accredited conferring organization.

5. Policymakers may wish to consider providing minimum standards of conduct for any person holding a senior designation

6a. Recommendation to SEC and States: policymakers may wish to consider increasing use of existing supervision and enforcement authority to enjoin and penalize misleading or other improper conduct by a holder of a senior designation.

6b. Recommendation to States: where private remedies do not currently exist, policymakers may wish to consider providing consumers with a private right to seek appropriate relief for improper conduct in connection with the use of senior designations.

7. State policymakers may wish to consider requiring financial professionals who utilize a senior designation to provide a disclosure to clients and prospective clients as described in section (3) above.