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Cynthia J. Borrelli, Esq.
BRESSLER, AMERY & ROSS, P.C.
(973) 514-1200

NAVIGATING SALES IN THE SENIOR MARKETPLACE

I. Financial Products

  The Senior Safe Act (“SSA”)

A. Summary
On May 24, 2018, President Trump signed into law the Senior Safe Act of 2018 Public Law No. 115-174) (“Act”) as part of a larger bill that revises many of the provisions of Dodd Frank relating to credit unions, community banks, and small regional banks.  The Act was modeled after a similarly named Maine statute and co-authored by Susan Collins (R-ME), the Chair of the Senate Special Committee on Aging, and Claire McCaskill (D-MO).  The purpose of the Act is to encourage a collaborative effort between regulators, financial firms, and legal organizations in order to prevent senior financial abuse by providing immunities for reporting under bank privacy laws.  It also encourages the development of education and training at financial institutions by conditioning these grants of immunity on the requirement that financial institutions provide training programs regarding recognizing and dealing with elder financial exploitation.  Under current laws, concerns about lawsuits resulting from false claims of fraud or abuse can discourage banks from reporting that an older adult might be the victim of fraud.  The new law facilitates reports by banks and other financial providers with regard to suspected abuse as it outlines a process to assure immunity for such reports.

For the full text of the law, see Section 303 of “Economic Growth, Regulatory Relief, and Consumer Protection Act.”(https://www.congress.gov/bill/115th-congress/senate-bill/2155/text#toc-id45B692A3CB264F64BDE568E071AA2CFD)  Section 303 contains the Senior Safe Act.

B. Motivational Approach to Training
The SSA adopts a motivational rather than mandatory approach.  It does not require reporting of financial abuse nor does it require the implementation of elder abuse training programs at financial institutions.  Rather, it strongly encourages both by providing immunities and making the immunities contingent on this training.  In some respects, this federal law is two steps behind the states, many of which have long ago enacted senior protection laws.  While nearly all states have adult protective services statutes, in the past 10 years, many states have passed laws making reporting of financial abuse more commonplace.  In fact, in some states, reporting suspected financial abuse is mandatory.  For example, as of March 2019 the state of Ohio will require CPAs, bank employees, financial planners, broker-dealers and investment advisers who have “reasonable cause to believe that an adult is being abused, neglected or exploited, to report.”  See Ohio SB No. 158 (introduced in the 132 GA).

Thus, although applicable nationwide, this new federal law brings protections to institutions and agencies in states where no reporting statutes have previously been adopted.  The Act describes certain parameters for the “Section 302” senior issue training.  This includes instructing individuals on how to “identify and report the suspected exploitation of a senior citizen,” recognize common signs of financial exploitation, and handle reporting and disclosure considerations with appreciation of the need to protect the privacy and respect the integrity of the individual customer.  Section 302 also provides that institutions relying on immunity under the Act must keep training records and implement the programs “as soon as practicable.”  For individuals who begin employment after the Act’s effective date, the training must be implemented no later than a year after the individual becomes employed.

 

C. The Devil is in the Details

The SSA protects against financial exploitation of senior citizens through the promise of immunity to so-called “covered financial institutions” (“CFI”) and individuals who disclose suspected financial exploitation to an enumerated “covered agency.”

“CFI” is broadly defined to include:

  • investment advisers
  • broker-dealers
  • credit unions
  • depository institutions
  • insurance companies
  • insurance agencies
  • transfer agents

“Covered agencies” are similarly broad in scope and include:

  • the SEC
  • a state financial regulatory agency, including a state securities or law enforcement authority and a state insurance regulator
  • each of the federal agencies represented in the membership of the Financial Institutions Examination Council under Section 1004 of the Federal Financial Institutions Examination Council Act of 1978
  • a securities association registered under Section 15A of the Securities Exchange Act of 1934
  • a law enforcement agency, or
  • a state or local agency responsible for administering adult protective services laws

D. How to Secure Immunity Under the SSA

Individual seeking immunity:  For an individual to receive immunity, i.e., protected from liability, including in any civil or administrative proceeding, for disclosing the suspected exploitation of a senior citizen to a covered agency, at the time of disclosure, he or she must have received requisite training; served as a supervisor or in a compliance or legal function for the CFI or, in the case of a registered representative, investment adviser representative or insurance producer, was affiliated or associated with the CFI; and disclosed in good faith and with reasonable care.

CFI seeking immunity:  Immunity for a CFI is similar to the requirements for a reporting individual.  For a CFI to receive immunity, the reporting individual on behalf of the CFI who made the disclosure to the covered agency must have been employed by the CFI at the time of disclosure, and in the case of a registered representative, insurance producer or investment adviser representative, must have been affiliated or associated with the CFI at the time of the disclosure; and received requisite training before the disclosure to a covered agency.

Limitations:  The Act expressly identifies as a “Rule of Construction” that nothing in it shall be construed to limit the liability of an individual or a CFI in a civil action for any act, omission, or fraud that is not a disclosure described in the Act.

Training Content:  The Act provides that the content of the training – used by either the CFI or provided by a third-party training company selected by the CFI – must:

  • be maintained by the CFI and made available to the covered agency with examination authority over the CFI, upon request, except that a CFI shall not be required to maintain or make available such content with respect to any individual who is no longer employed by, or affiliated or associated with the CFI;
  • instruct those individuals subject to the program (which includes each officer or employee of, or registered representative, insurance producer, or investment adviser representative affiliated or associated with, the CFI) who may come into contact with a senior citizen as a regular part of the professional duties of the individual or may review or approve the financial documents, records, or transactions of a senior citizen in connection with providing financial services to a senior citizen, on how to identify and report the suspected financial exploitation of a senior citizen internally and to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen;
  • discuss the need to protect the privacy and integrity of each individual customer of the CFI; and
  • be appropriate to the job responsibilities of the individual attending the training session.

Timing:  The training must be provided by the CFI as soon as reasonably practical for current employees and individuals and must be provided for new employees within one year after the date that the individual became employed.

Records:  The CFI must maintain certain records (to be provided upon request of a covered agency with examination authority over the CFI), including a record of each individual who has completed the training, whether employed or affiliated with the CFI, regardless of whether the training was provided by the CFI or a third party selected by it and further must reflect whether the training was completed before the individual was employed by, or affiliated or associated with the CFI and whether completed before or after the Act became effective.

E. Preemption of State Laws by the SSA

The SSA does not preempt state law governing the business of insurance except to the extent that it provides a greater level of protection against liability to an individual or CFI than that provided in the state law.

II. State Reporting Laws[1]

            There are 17 states (Arizona, Delaware, Florida, Indiana, Kentucky, Louisiana, Mississippi, New Hampshire, New Mexico, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Utah and Wyoming) and Puerto Rico that require all persons to report suspected financial exploitation.

  • South Carolina requires reports if the individual has actual knowledge of abuse, neglect, or exploitation.
  • Missouri requires reports if the adult has suffered serious physical harm or bullying and is in need of protection services
  • Mississippi is the only state whose APS statute specifically requires an “insurance agent or consultant” to report suspected financial exploitation.
  • At the beginning of January 2019, Virginia introduced legislation (S.B. 1175) requiring an employee of an “insurance company” to report abuse, neglect, or exploitation. Currently, employees may report.
  • Connecticut does not requirement insurance agents to report, but does require insurance companies to train its employees on elder abuse and exploitation. https://ctcwcs.com/financial-abuse-exploitation-portal/

https://www.cga.ct.gov/current/pub/chap_588r.htm#sec_32-350

  • 27 states (California, Connecticut, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, Pennsylvania, South Carolina, South Dakota, Vermont, Virginia, Washington, West Virginia and Wisconsin) and DC permit all persons to report suspected financial exploitation.
  • There are 6 states (Alabama, Alaska, Arkansas, Colorado, New York and Oregon) that do not expressly permit or require reporting, but provide immunity for persons who report suspected financial exploitation.

            Arizona is the only state that is subject to interpretation.  Arizona requires any person who is responsible for “any action concerning the use or preservation of a vulnerable adult’s property” to report.  https://www.azleg.gov/ars/46/00454.htm  Arguably an insurer would fall under that definition.

III. Health Products

A. The NAIC’s Task Force

Setting standards to protect consumers from misleading and fraudulent marketing practices with respect to senior sales has long since been the goal of the National Association of Insurance Commissioners (“NAIC”).  The NAIC’s Health Insurance and Managed Care Committee (b) has established a Senior Issues Task Force with the express charge to:

  • consider policy issues;
  • develop appropriate regulatory standards;
  • revise, as necessary, NAIC model laws, consumer guides and training materials on Medicare supplement insurance, senior counseling and other insurance issues impacting older Americans;
  • continue to monitor and work with federal agencies to advance appropriate regulatory standards for Medicare supplement and other forms of health insurance applicable to older Americans;
  • review the Medicare Supplement Insurance Minimum Standards Model Act (#650) and the Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act (#651) to determine if amendments be required based on changes to federal law, and revise if necessary;
  • monitor the Medicare Advantage and Medicare Part D marketplace; assist the states, as necessary, with regulatory issues; and maintain a dialogue and coordinate with the U.S. Centers for Medicare and Medicaid Services (CMS) on regulatory issues, including solvency oversight of waived plans and agent misconduct.

B. Long-Term Care Sales are Particularly Regulated

The U.S. population tends to live longer into one’s 80s, 90s and even beyond.  Moreover, the cost of healthcare has escalated.  Thus, it is not surprising that the sale of long-term care products designed to provide for care (often either in-home or in an institution) for seniors who lack the cognitive physical ability to carry out activities of daily living has also increased dramatically.  Often those who purchase the product are already experiencing some level of diminished capacity and are, thus, vulnerable.

            The NAIC’s Long-Term Care Innovation Subgroup, its Long-Term Care Benefit Adjustment Subgroup, the Short Duration Long-Term Care Policies Subgroup, and the Long-Term Care Shopper’s Guide Working Group all are also critical to the NAIC’s monitoring of senior issues in the state regulation of insurance.  These laws address all aspects of sale and financing of long-term care in a marketplace which is experiencing severe financial instability due to early pricing deficiencies and increasingly high claim costs as the U.S. population ages.

  1. IV. New York and New Jersey Annuity and Life Insurance Regulation Directed to Seniors

Most states have developed rules regarding standards and procedures substantially similar to the National Association of Insurance Commissioners’ (“NAIC”) Suitability in Annuity Transactions Model Regulation (“NAIC Model”).  These laws are particularly relevant in the senior market where policyholders and investors are particularly vulnerable to misrepresentation, complex products without clear explanations, and even fraud.  New York and New Jersey laws are discussed at length by way of example and to highlight specific mandates beyond the Models. 

A. New York

The New York Department of Financial Services (“DFS”) promulgated Regulation 187 (11 NYCRR 224), which requires insurers to set forth standards and procedures for recommendations to consumers with respect to annuity contracts so that the insurance needs and financial objectives of the consumers are appropriately addressed.  Section 224.4 (g) & (h) holds the insurance company responsible for ensuring that every producer recommending its annuity products is adequately trained to make the recommendation.

DFS also proposed Best Interests Standards for Life and Annuity Products in December 2017 (the “Regulation”) and those were adopted in July, 2018.  These initiatives impact a broad scope of financial products, financial service providers and consumer segments, including the senior marketplace.  The Regulations address several issues for insurance producers, life insurers and annuity issuers, and establish a New York-specific standard for insurance licensee conduct by expanding the scope and requirements of New York’s suitability regulations discussed above. 

https://www.dfs.ny.gov/insurance/r_finala/2018/rf187a1txt.pdf

The New York Regulations address the duties and obligations of insurers, including fraternal benefit societies, by requiring them to establish standards and procedures for recommendations to consumers with respect to annuity contracts and insurance policies delivered or issued for delivery in New York State so that any transaction with respect to those contracts and policies is (i) in the best interest of the consumer and (ii) appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction.

New York’s standards and procedures are substantially similar both to the NAIC Model for annuities, and the Financial Industry Regulatory Authority’s (“FINRA”) current National Association of Securities Dealers (“NASD”) Rule 2310 for securities.  To date, more than 30 states have implemented the NAIC Model, while NASD Rule 2310 has applied nationwide for nearly 20 years.  The Regulations expressly intend to bring these national standards for annuity contract sales to New York State.

The New York Regulations also clearly describe the nature and extent of supervisory controls that an insurer must maintain to achieve compliance.  The Regulations further identify the duties and obligations of producers when making recommendations to consumers with respect to policies delivered or issued for delivery in New York State to ensure that a transaction is in the best interest of the consumer and appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction.[2]

Section 3209 of the New York Insurance Law establishes disclosure requirements in the solicitation, negotiation or procurement of life insurance, annuities or funding agreements.  Section 3209 prohibits an insurance company from issuing a variable life insurance policy unless it provides to the prospective purchaser a copy of the most recent buyer's guide and the preliminary information as required by Insurance Law Section 3209(d).  In addition, New York Insurance Regulation 34-A (11 NYCRR 219.4) prohibits an insurance agent or broker from making or issuing an advertisement that contains statements that are untrue or misleading with respect to life insurance and annuity contracts.

New York Regulation 60 (11 NYCRR 51) regulates the acts and practices of insurers, insurance agents/producers, insurance brokers and other licensees with respect to the internal and external replacement of certain life insurance policies and annuity contracts.  Section 51.7(a)(1) of Regulation 60 prohibits an insurer, agent or broker from making or giving “any deceptive or misleading information in the ‘Disclosure Statement’ or in any proposal, including the sales material used in the sale of the proposed life insurance policy or annuity contract.”  An insurance producer must explain fully and accurately the consequences of any replacement of a life, accident and health, or property/casualty insurance policy or contract or any annuity contract so that the policy or contract holder can make an informed decision. 

B. New Jersey

N.J.S.A. 17B:25-34 (the “Act”) prescribes marketing, information disclosure and product suitability requirements for annuity contracts solicited directly to consumers.  The Act requires the New Jersey Commissioner of Banking and Insurance to approve an annuities buyer’s guide and the standard form of an annuity contract disclosure statement to be used by an insurance producer, agent, representative of a fraternal benefit society not required to be licensed as an insurance producer, or an insurer in the solicitation, negotiation, or sale of an annuity.  The Act also requires that those selling these products make reasonable efforts to obtain and record information about the suitability of the product for the solicited consumers and the consumer’s acknowledgment of the information recorded.

The New Jersey Department of Banking and Insurance’s rules on Life Insurance and Annuities Replacement, N.J.A.C. 11:4-2.1, regulate the activities of insurers and producers with respect to the replacement of certain existing life insurance and annuity contracts.  The rules provide for notice and disclosure requirements that apply to the sale of life insurance and annuities where the applicant has existing policies or contracts in force.  Life insurance and annuity contracts may be exchanged tax free, but insurance companies may charge fees for the exchange, which can lead to concerns about unnecessary replacements.  See Jeff D. Opdyke, Annuity Sales Face Crackdown by Regulators, Wall St. J., Aug. 4, 2005.  Seniors may be encouraged to switch from one life insurance or annuity to another, racking up big administrative costs and fees.  That is why in 2005, New Jersey promulgated the Senior Citizen Investment Protection Act, which limits how long annuity sellers can impose surrender charges in the event the annuity owner wants to sell the product. P.L. 2005, c. 45 (amending N.J.S.A. 17B:25-20).

The New Jersey Legislature has pending bills which would require Non-Fiduciary Disclosures.  Both bills were introduced in January 2018 (S. 735/A. 335) and have not yet progressed through the state Legislature.

If promulgated into law, the pending bills would require certain disclosures by non-fiduciary investment advisors regarding their fiduciary status with clients.  Reintroduced in the 2018 legislative session on January 9 by State Senator Patrick Diegnan, Jr. (D-Middlesex), along with Assemblywoman Nancy Pinkin (D-Middlesex) and Assemblyman Nicholas Chiaravalloti (D-Hudson), the bills (S. 735/A. 335) would require non-fiduciary investment advisors to disclose to clients that they do not have a fiduciary relationship and “are not required to act in the client’s best interests.”  Within the scope of the law, a non-fiduciary investment advisor would include “any individual or institution that advertises or uses in self-identification any term that is suggestive of investment, financial planning, or retirement planning knowledge or expertise.”  The definition includes, but is not limited to, broker/dealers, investment advisors, financial advisors, financial planners, financial consultants, retirement planners, retirement brokers, or retirement consultants.  If adopted in their current forms, the proposals would impose a $5,000 fine for violations.

The New Jersey disclosures, referred to in the pending legislation as “plain language” disclosures, would need to be provided both orally and in writing and specifically at the outset of the professional relationship, stating:

I am not a fiduciary.  Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.

Those subject to the legislation would be required to maintain a signed acknowledgement that the written disclosure had been provided to the client.  In addition, the written disclosure must accompany any subsequent oral advice or written materials provided to clients, such as investment brochures and advertising materials.

Investment advisors subject to an existing state or federal fiduciary standard or by applicable standards of professional conduct would not be subject to the requirements.  However, investment advisors who are subject to a fiduciary duty with respect to certain types of investment advice, but not to others, would be required to disclose the extent of that duty to individual investors.

The proposed New Jersey legislation has not yet been adopted, although those closely monitoring the bills expect adoption.  However, as the legislation has not yet been adopted, on September 17, which marked the 10th anniversary of the 2008 global financial crisis, New Jersey Governor Phil Murphy announced plans to issue “a rule strengthening the standards for investment professionals in New Jersey to better protect residents seeking to invest their life savings and to close a regulatory gap in federal oversight that helped fuel the economic meltdown a decade ago.” 

https://www.nj.gov/governor/news/news/562018/approved/20180917c.shtml 

The rulemaking, being initiated by the New Jersey Bureau of Securities, would impose a fiduciary duty on all New Jersey investment professionals, requiring them to place their clients’ interests above their own when recommending investments.

The pending legislation in New Jersey and the recently adopted New York Regulations, in particular, signal aggressive state action to protect consumers even in the face of recent federal rules.

C. Senior-Specific Designations

Many states, including New Jersey and New York, have adopted a version of the NAIC’s Model Regulation on the Use of Senior-Specific Certifications and Professional Designations in the Sale of Life Insurance and Annuities in order to mitigate fraudulent and misleading marketing practices in the solicitation, sale or purchase of, or advice made in connection with, senior products.  See, e.g., N.J.A.C. 49:3-52.2 and N.Y. Comp. Codes R & Regs tit. 11,225.0-225.3.  Interestingly, there appears to be no similar, formal rule with regard to the sale of health products to the senior market.

In 2014, the New York Legislature supplemented Regulation 199 by amending the general business law to provide for mandatory disclosure in advertising using senior-specific designations.  Section 350-b-1.  This is not limited to insurance transactions, but it directly impacts insurance producers who market themselves or their businesses as having credentials related to seniors.  This law requires clear and prominent disclosure in advertising of the designation source.  The law specifically allows designations that are self-created, but requires advertising disclose that the designation is created by the business or individual doing the soliciting.  Even if an insurance producer is using an insurance-permitted designation, it still must disclose the source of the designation.

New Jersey has also restricted the use of professional designations and senior-specific certifications in the sale of life insurance and individual annuities, which helps ensure persons or entities selling these products do not mislead seniors as to their expertise in senior-related issues.  N.J.S.A. 17B:25-36 provides that an insurance producer, or an agent, representative or member of a fraternal benefit society not required to be licensed as an insurance producer, or an insurer, if no producer or non-licensed society agent, representative or member is involved, shall not sue a certification, professional designation, or form of advertising expressing or implying in an untrue, deceptive, misleading, or false manner that the producer, non-licensed society agent, representative or member, or insurer has special education, training or experience in advising or servicing senior citizens or retires in connection with the sale of annuities.  These limitations are consistent with the prohibitions upon unfair trade practices set forth in the Unfair Trade Practices Act (N.J.S.A. 17B:30-1).

  1. V. How to Successfully Sell to Seniors in a Regulated Marketplace Without Creating Unacceptable Sales Practice Exposure

A 2015 article linked here (https://www.thinkadvisor.com/2015/03/04/8-ways-to-successfully-sell-to-seniors/) identifies seniors as by far the fastest growing market segment in the United States.  Countless articles, including the one linked above, instruct the reader on how to sell to seniors since the marketplace is also the most lucrative.  According to the latest U.S. census, the senior demographic comprises between 37% and 50% of the total U.S. population.  Additionally, seniors possess $1.6 trillion of disposable income in the country and have a combined net worth around $19 trillion, spending at least $7 billion online each year as of 2015.

 (http://www.lifehealthpro.com/2015/03/02/5-senior-market-segment-and-howtoselltothem)

    In the banking field a recent article reflects that banks report a 12% increase of suspected financial abuse of seniors.  https://www.wsj.com/articles/scamming-grandma-financial-abuse-of-seniors-hits-record-11548344907?mod=hp_lead_pos5  Can the insurance industry be far behind?  Trade associations, life and health insurers and others who will profit from lucrative sales to seniors are instructing the marketplace on how to sell – “Be personable, be a sounding board for ideas, be focused on the quality of life, be easy to work with, be digital, be cognizant of the emotions involved, be there for life, be a resource.”  But who instructs the marketplace on how to protect carriers and their sales force from complaints by vulnerable investors?

            The best way for financial institutions and their sales force to avoid complaints and, therefore, negative regulatory action is to watch for red flags that could lead to allegations of possible deceptive sales practices:

  • Avoid high-pressure sales pitch, terms such as “limited-time” offer and making multiple contacts, thereby applying pressure on a prospective customer.
  • Avoid “quick-change” tactics. Do not prey on a senior’s “time fears” in order to persuade him to change coverage quickly without giving the prospective purchaser or his loved one or another who might be assisting in the purchase to conduct adequate research and gain a level of comfort with the proposed product.
  • Do not be unwilling or unable to prove creditability. A licensed agent must be willing to show adequate credentials both in terms of licensing, education and training if requested, and demonstrate affiliation with reputable carriers;
  • Do not oversell. Respond to questions, point out pitfalls as well as benefits of the product(s) and continually reinforce the right of the senior to seek assistance from family members or other trusted advisers.
  • Use relatable language. Speak the language of the senior, which means avoid using teenage jargon, trendy language and Internet slang.  Get right to the point, explain the product, demonstrate how it is going to improve quality of life, and remember, that it is not a product you are selling, but rather what the product will do for a senior.  For example, show protection is provides to a family.  Review the level of benefits, pointing out caps and excluded expenses, and make efforts to personalize the senior’s experience.  In other words, do illustrations based on their life, not upon the life of an average person.
  • If you believe that a prospect does not understand the product, either because of diminished capacity, or because he simply does not understand the information conveyed, encourage him to seek help, and gently ask whether he would like to have a family member or other trusted adviser present to review the product with both of you.
  • Training, training, training. Carriers should train the sales force, require evidence of participation, seek expertise in developing training curriculum, and retain training materials for audits and to secure immunity from covered agencies.
  • Agents, brokers and other financial representatives should avail themselves of all available training to protect themselves against licensing sanctions and/or damage claims.

[1] The author gratefully acknowledges the research and expertise of Daniel S. Strashun, Esq., an associate at Bressler, Amery & Ross, in helping to develop this summary of relevant state law.

[2]
The Financial Consumer Protection Act of 2019, introduced in the Maryland Senate in February and recently posted online, contains a short provision that would make brokers and insurance agents fiduciaries and would require them to act in the best interests of their customers “without regard to” their own financial gain.

References