An IAR of a state-registered investment adviser reasonably believes that a requested disbursement from the account of a 72-year-old client may result in financial exploitation. The IAR promptly notifies Adult Protective Services and the Administrator, and the adviser, after starting an internal review, delays the disbursement and gives the notices the Act requires. Both acted in good faith and with reasonable care. The client later shows that the disbursement was a legitimate gift to a relative, and sues the IAR and the adviser over the report and the delay.
Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, as adopted by the state, which statement is correct? Answer: The IAR and the adviser are immune from civil liability even though the suspicion later proved unfounded.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation: a qualified individual, such as an IAR, who in good faith and with reasonable care reports suspected exploitation of an eligible adult to APS and the Administrator is immune from administrative and civil liability for the report (Section 4), and a broker-dealer or investment adviser that delays a disbursement in good faith and with reasonable care under the Act is immune from administrative and civil liability for the delay (Section 8). The client is 72, so an eligible adult; both acted in good faith and with reasonable care, and a later showing that the gift was legitimate does not remove the immunity. The statement imposing liability for reporting without consent is wrong because the Act requires the report and protects the reporter, including for not telling the client. The statement imposing liability for delaying a legitimate disbursement ignores the immunity for good-faith delays. The prior-approval statement is wrong because the firm delays on its own reasonable belief after starting an internal review, with notice to the Agencies, not with their approval.
A FINRA member broker-dealer maintains an account for a customer, age 62, who was diagnosed with early-stage dementia. The customer's son holds a durable power of attorney and is authorized to transact business on the account. The son has begun directing the firm to liquidate the customer's $400,000 portfolio and wire the proceeds to an account in the son's name. During a recent call, the customer was confused and could not explain the transfers. The firm reasonably believes that her impairment leaves her unable to protect her own interests and that the son is financially exploiting her.
Under FINRA Rule 2165, which of the following actions may the firm take? Answer: Place a temporary hold on the liquidation and wire transfer because the customer is a Specified Adult under the rule.
FINRA Rule 2165: a Specified Adult is a natural person age 65 or older, or a natural person age 18 or older whom the member reasonably believes has a mental or physical impairment that renders the person unable to protect his or her own interests. A member that reasonably believes financial exploitation has occurred, is occurring, has been attempted or will be attempted may place a temporary hold on a disbursement of funds or securities from, or a transaction in securities in, the Specified Adult's account, authorized by supervisory, compliance or legal staff named by title in its written supervisory procedures. The customer is 62, but the firm's reasonable belief about her impairment makes her a Specified Adult, and the liquidation is a securities transaction and the wire a disbursement, so both may be held. The statement that the firm must follow the son's instructions mistakes a power of attorney for a bar on acting on a reasonable belief of exploitation. The court-declaration statement is wrong because the rule rests on the member's reasonable belief, not a judicial finding. The certification statement is wrong because the rule has no such step, and a suspected exploiter's certification would not displace the firm's reasonable belief.
- Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which of the following statements regarding financial exploitation is true?
Answer: Financial exploitation includes obtaining control of an eligible adult's money or property through undue influence, without any threat or force.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation § 2. Financial exploitation is the wrongful or unauthorized taking, withholding, appropriation or use of an eligible adult's money, assets or property, or an act or omission, including through a power of attorney, guardianship or conservatorship, to obtain control of them through deception, intimidation or undue influence, or to convert them, so as to deprive the eligible adult of them. Because undue influence is a listed means, exploitation can occur without any threat or physical force. The statement requiring proof of an actual monetary loss is wrong: the Act requires a report on a reasonable belief that exploitation may have occurred, may have been attempted or is being attempted, and permits a delay on a reasonable belief that a disbursement may result in exploitation. The statement limiting exploitation to strangers is wrong because the definition expressly reaches persons acting through a power of attorney, guardianship or conservatorship, who are usually known to the eligible adult. The statement treating any gift or transfer to a caregiver or family member as exploitation is wrong: a transfer is exploitation only if it is wrongful or unauthorized or obtained through deception, intimidation or undue influence.
- Under FINRA Rules 2165 and 4512, which of the following is true regarding a trusted contact person?
Answer: A member that suspects financial exploitation may contact the trusted contact person about its concerns, but that person has no authority to transact business in the account.
FINRA Rules 4512 and 2165. A member must make reasonable efforts to obtain the name and contact information of a trusted contact person, age 18 or older, for each non-institutional account, and must disclose at account opening that it may contact that person and disclose account information to address possible financial exploitation, to confirm the customer's current contact information or health status, or to identify any legal guardian, executor, trustee or holder of a power of attorney. The trusted contact is someone the member may contact; the role carries no authority to transact business or make decisions in the account. The statement requiring the trusted contact's written consent before a temporary hold is wrong: Rule 2165 requires no consent, only notice to the trusted contact (unless unavailable or a suspect) within 2 business days after the hold is placed. The statement requiring a family member, attorney or accountant age 21 or older is wrong: the only requirement is age 18 or older. The statement giving the trusted contact power to receive duplicate statements and execute trades describes a power of attorney or other authorized party, not a trusted contact person.
- Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, a broker-dealer that reasonably believes, after starting an internal review, that a requested action may result in financial exploitation of an eligible adult may delay which of the following?
Answer: A transfer of cash from the eligible adult's brokerage account to a checking account the client owns at an outside bank.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation § 7. A broker-dealer or investment adviser may delay a disbursement from an account of an eligible adult (or an account of which an eligible adult is a beneficiary) when it reasonably believes, after starting an internal review, that the disbursement may result in financial exploitation. The Act reaches disbursements only, not trades; NASAA considered and declined holds on transactions. A transfer of cash out of the account to the client's own checking account at an outside bank is a disbursement, so it may be delayed. The exchange between mutual funds within the account is wrong because it is a transaction that moves nothing out of the account; a hold on it would be available only under FINRA Rule 2165, which covers transactions. The sale with the proceeds left in the account's cash position is wrong for the same reason. The beneficiary designation change is wrong because it moves no money or securities out of the account and so is not a disbursement.
- Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, an investment adviser representative reasonably believes that financial exploitation of an eligible adult client is being attempted. Which of the following statements regarding notification is true?
Answer: The IAR must promptly notify both adult protective services and the Administrator, whether or not any disbursement is delayed.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation §§ 3 and 5. A qualified individual (an agent, an IAR, or a person in a supervisory, compliance or legal role at a broker-dealer or investment adviser) who reasonably believes that financial exploitation of an eligible adult may have occurred, may have been attempted or is being attempted shall promptly notify both adult protective services and the Administrator. The duty does not depend on whether the firm delays a disbursement. The statement that reporting is left to the IAR's judgment is wrong: the governmental report is mandatory; only notice to a third party the eligible adult designated in advance is permissive. The statement requiring the client's written consent first is wrong: the Act requires the report and gives immunity for it, including for not telling the customer. The statement making the designated third party a gatekeeper is wrong: third-party notice is optional, may never go to a suspected exploiter, and does not delay the mandatory report to the Agencies.
A 73-year-old client of a state-registered investment adviser has Alzheimer's disease. The client's son holds a durable power of attorney over the client's finances. The son instructs the adviser to wire $60,000 to an account he controls and to transfer 1,000 shares of stock from the client's account into his own name. The adviser reasonably believes, after starting an internal review, that both requests may result in financial exploitation. The state's version of the Model Act defines a disbursement to include a transfer of funds or securities out of the account.
Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, as adopted by the state, which action is the adviser permitted to take? Answer: Delay both the wire and the share transfer, because the client is an eligible adult and both are disbursements.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation: a broker-dealer or investment adviser may delay a disbursement from an eligible adult's account when it reasonably believes, after initiating an internal review, that the disbursement may result in financial exploitation. An eligible adult includes a person 65 or older, so the 73-year-old client qualifies. Under the state's version, a disbursement includes a transfer of funds or securities out of the account, so both the $60,000 wire and the transfer of shares into the son's name are disbursements the adviser may delay. The statement allowing a delay of the wire only confuses moving shares out of the account, which is a disbursement, with executing a trade, which the Model Act does not cover. The attorney-in-fact consent statement would make the suspected exploiter the gatekeeper; the Act requires no consent, and the son, as a suspect, is not even owed notice of the delay. The guardianship statement is wrong because the Act acts on the firm's reasonable belief, not a court appointment.
- Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which of the following statements regarding a broker-dealer's delay of a disbursement from an eligible adult's account is true?
Answer: The broker-dealer cannot extend the 15-business-day delay itself; adult protective services or the Administrator may request one, to 25 business days total.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation § 7. A broker-dealer or investment adviser may delay a disbursement from an eligible adult's account if it, or a qualified individual, reasonably believes after starting an internal review that the disbursement may result in financial exploitation. It must give written notice to all parties authorized to transact business on the account (except a suspected exploiter) and notice to adult protective services (APS) and the Administrator within 2 business days after the requested disbursement, and report the review results to them within 7 business days. The delay expires at the sooner of the firm's determination that there is no exploitation or 15 business days, and it may be extended to no more than 25 business days in total only if APS or the Administrator requests it; either Agency or a court may end it sooner, and a court may extend it on petition. The statement letting the broker-dealer extend the delay on its own by 10 business days applies the FINRA Rule 2165 member extension, which the Model Act does not give the firm. The statement allowing a delay of a securities trade is wrong because the Model Act authorizes delays of disbursements only. The statement putting the notices at 7 business days confuses the 2-business-day notice deadline with the 7-business-day deadline for reporting the review results.
A FINRA member broker-dealer places a temporary hold under FINRA Rule 2165 on a request by its 78-year-old customer to wire funds to an entity controlled by the customer's caregiver. The customer then demands that the wire be processed immediately. The firm began its internal review on the day the hold was placed, and by the 10th business day the review supports the firm's reasonable belief that the caregiver is financially exploiting the customer. The firm has not reported the matter to any state regulator, agency or court, and none has acted on the hold.
Which of the following statements is correct under FINRA Rule 2165? Answer: The firm may extend the hold for up to 10 additional business days, and the customer's demand does not by itself require release.
FINRA Rule 2165: a temporary hold expires not later than 15 business days after it is first placed, unless a state regulator, agency or court terminates or extends it. The member may extend it by up to 10 more business days if its internal review supports its reasonable belief of financial exploitation, and by up to 30 more only if the review supports the belief and the member has also reported the matter to a state regulator, agency or court. The review here supports the belief and the firm has made no such report, so a 10-business-day extension is available. The rule lets the member hold a Specified Adult's disbursement on its reasonable belief, so the customer's demand alone does not force release. The immediate-release statement ignores that hold authority. The court-order statement invents a judicial step the rule does not require for the firm's own extension. The 25-business-day statement misstates the extension: it is 10 business days now, and the further 30 days requires a report the firm has not made.
An IAR of a state-registered investment adviser manages the account of a 64-year-old client who suffered a stroke and, because of the resulting cognitive impairment, is a person subject to the state's Adult Protective Services statute. The client's paid caregiver presents a signed request to disburse $60,000 from the client's account to the caregiver's personal account. The IAR cannot reach the client, the signature looks unlike the client's prior signatures, and the caregiver refuses to document any services. The IAR reasonably believes the disbursement may result in financial exploitation.
Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, as adopted by the state, which statement is correct? Answer: The IAR must promptly report to APS and the Administrator, and the adviser may delay the disbursement.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation: an eligible adult is a person 65 or older or a person subject to the state's Adult Protective Services statute. A qualified individual, including an IAR, who reasonably believes financial exploitation of an eligible adult may have occurred, been attempted or is being attempted must promptly notify both APS and the Administrator, and the investment adviser may delay a disbursement after initiating an internal review, with notice to the account parties (other than a suspect) and to APS and the Administrator within two business days. The client is 64 but is subject to the state APS statute, so she is an eligible adult, and the mismatched signature, the unreachable client and the undocumented services support the IAR's belief. The age-65-only statement ignores the APS-statute prong. The statement requiring the disbursement because it is signed and no court has acted ignores that the delay rests on the firm's reasonable belief, not a judicial finding. The designated-third-party statement is wrong because the Act only permits notice to such a person and gives that person no power to approve or block a delay.
A FINRA member broker-dealer places a temporary hold on a disbursement from the account of a 74-year-old customer after the firm reasonably believes that the customer's neighbor, whom the customer named as the account's trusted contact person, is pressuring the customer to make the withdrawal. The customer's daughter is also authorized to transact business on the account and is not suspected of involvement. The neighbor has no authority to transact business on the account.
Under FINRA Rule 2165, which parties must the firm notify of the temporary hold? Answer: The customer and all authorized parties, but not the neighbor, because the trusted contact is believed to be involved.
FINRA Rule 2165: not later than two business days after first placing a temporary hold, the member must notify, orally or in writing, all parties authorized to transact business on the account and the trusted contact person, unless the party or trusted contact is unavailable or the member reasonably believes that person is involved in the financial exploitation. The customer and the daughter are authorized parties and must be notified. The neighbor is the trusted contact but is the suspected exploiter, so the firm should not notify him. The statement requiring notice to the neighbor ignores the involvement exception. The statement limiting notice to the customer ignores the duty to notify every authorized party who is not a suspect. The statement requiring notice to the Administrator is wrong because Rule 2165 imposes no duty to report to a state regulator; such a report matters only for the firm's longer extension.
- Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which of the following statements regarding the liability of a qualified individual or a firm is true?
Answer: A qualified individual who reports in good faith and with reasonable care is immune from administrative and civil liability, even if no exploitation is found.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation §§ 4, 6 and 8. A qualified individual (an agent, an IAR, or a person in a supervisory, compliance or legal role at a broker-dealer or investment adviser) who, in good faith and exercising reasonable care, reports to adult protective services and the Administrator is immune from administrative or civil liability arising from the report, or from not telling the customer about it; the same immunity covers permitted third-party notices, and a broker-dealer or investment adviser that delays a disbursement in good faith and with reasonable care is immune from administrative or civil liability for the delay. The immunity does not depend on exploitation later being confirmed. The statement adding criminal immunity is wrong: the Act gives no immunity from criminal liability. The statement conditioning immunity on a formal Administrator finding is wrong: the test is the firm's good faith and reasonable care, not a later finding. The statement that a firm is not immune for a delay later found unnecessary is wrong: a delay made in good faith and with reasonable care is protected.
- None of the following clients is subject to the state's adult protective services statute. Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which client is an "eligible adult"?
Answer: A 67-year-old client who has no diagnosed physical or mental impairment and lives independently in her own home.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation § 2. An "eligible adult" is a person 65 years of age or older, or a person subject to the state's adult protective services statute; the Act has no separate mental- or physical-impairment test. The 67-year-old qualifies by age alone, so the client with no diagnosed impairment is an eligible adult. The 40-year-old the firm believes has an impairment that leaves her unable to protect her own interests is not: that is the second prong of the FINRA Rule 2165 "specified adult" definition, and under the Model Act a person under 65 qualifies only through the adult protective services statute, which the stem rules out. The 62-year-old who designated a third party is not, because a designation does not create eligibility and the client is under 65. The 55-year-old target of an exploitation scheme is not, because eligibility turns on age or coverage by the adult protective services statute, not on being a victim.
A broker-dealer maintains an account for a customer, age 75. At account opening, the customer refused to name a trusted contact, and the firm documented its reasonable efforts. Six months later, a registered representative observes three large outgoing wires to a foreign bank within one week. The representative cannot reach the customer, who is traveling, and reasonably suspects financial exploitation.
Under FINRA rules, which of the following is correct? Answer: The firm may place a temporary hold on further disbursements from the account based on the reasonable suspicion even though no trusted contact is on file.
Under FINRA Rule 2165, a member may place a temporary hold on further disbursements from the account of a specified adult (age 65 or older) when the member reasonably believes financial exploitation has occurred, is occurring, has been attempted, or will be attempted. A trusted contact on file is not a prerequisite; the absence of one does not bar the hold. Separately, FINRA Rule 4512 requires only reasonable efforts to obtain a trusted contact at account opening, and documenting the customer's refusal satisfies that obligation. The family-consent option incorrectly adds a precondition of family consent. The Administrator-approval option incorrectly makes advance regulatory approval a condition of the hold. The customer-written-authorization option incorrectly makes the hold contingent on the customer's authorization, which Rule 2165 does not require.
A 75-year-old client of a state-registered investment adviser calls the office, sounds confused and pressured, and directs the IAR to wire $300,000 from her account's cash balance to a company organized by her new romantic partner, who promises a 'guaranteed 20% monthly return.' The client has signed a written instruction to that effect. The IAR suspects financial exploitation but cannot confirm it, and the adviser has started an internal review.
Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, as adopted by the state, which of the following is correct? Answer: The adviser may delay the disbursement because a reasonable belief that it may result in exploitation is enough.
NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation: a broker-dealer or investment adviser may delay a disbursement from an eligible adult's account if it, or a qualified individual, reasonably believes after initiating an internal review that the disbursement may result in financial exploitation. Confirmation is not required. The client is 75, so an eligible adult, and her confusion, the pressure and the promise of a guaranteed 20% monthly return support a reasonable belief. The delay lasts up to 15 business days, and the adviser must give written notice to the parties authorized on the account (other than a suspect) and notice to APS and the Administrator within two business days after the requested disbursement. The statement treating the signed instruction as conclusive ignores the reasonable-belief standard. The statement making a delay mandatory above $50,000 for clients 65 or older is wrong because the delay is permissive and has no dollar threshold. The 10-day statement misstates the length: a delay may run up to 15 business days, and longer if APS or the Administrator requests an extension or a court orders one.
