Client Accounts & Trading Practices

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1 Client Accounts & Firm Trading Practices

The information in the following sections will address the manner in which the firm defines the term “client,” client disclosure requirements, and documentation for client files.

1.1 Definition of a Client

The firm defines a “client” to be the following:

  • A natural person; and

  • Any immediate family member of the natural person who has the same principal residence;

  • All accounts of which the natural person and/or the persons referred to in the previous two points are the only primary beneficiaries;

  • All trusts of which the natural person and/or the persons referred above are the only primary beneficiaries; OR

  • A corporation, general partnership, limited partnership, limited liability company, trust (other than an individual’s trust), or other legal organization that receives investment advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries; or

  • Two or more legal organizations referred to in the preceding bullet point that have identical owners; or

  • Department of Labor qualified retirement plan; or

  • A government entity.

1.2 Client Disclosures

The IAR will furnish each client or prospective client with a current written disclosure statement (Form ADV Part 2A or wrap brochure), as well as the IAR’s brochure supplement (Form ADV Part 2B) if applicable. This disclosure must be delivered at least 48 hours prior to entering into any written contract with such client or prospective client or the client will have the right to terminate the contract without penalty within five business days after entering into it.

Within 120 days of the firm’s fiscal year-end and without charge, the firm will deliver to its clients its Form ADV Part 2A/Part 2 or offer to make delivery of Form ADV Part 2A/Part 2 and provide a summary of changes that have occurred to the brochure since its last filing. If no changes have occurred to Form ADV Part 2B - Brochure Supplement (Advisory Personnel), it is not required to be delivered with the revised Form ADV Part 2 or its summary of changes on an annual basis.

The delivery of Form ADV Part 2 may be made via electronic means as long as the client has previously consented in writing to receiving such communications and the firm can verify its delivery. The firm will provide its Form ADV Part 2 within seven days of the client’s request.

1.3 Other Disclosure Items

The firm will notify its clients through the use of Form ADV or similar document of financial or disciplinary matters that may involve the firm, its management, or control persons. Certain events, as stated under current statute, are required to be disclosed for a period of up to 10 years (or longer in certain matters) after the occurrence. Generally, financial, disciplinary, or legal events that may require disclosure would include matters not resolved in the favor of the firm or its management/control persons, or where such an event might materially impact the firm’s ability to meet certain contractual commitments with clients, or issues that would otherwise compromise the integrity of the firm. Calculating the 10 year period for issues presumed to be material, the date of a reportable event will be the date which the final order, judgment, or decree was entered; or the date which any appeal from preliminary orders, judgments, or decrees lapsed.

1.4 Client Accounts

1.4.1 Client Agreements

All clients engaging the firm for its services will execute an agreement, including firm officers, directors, employees, and immediate family members. Among other items that may be noted in the document, the agreement should generally describe:

  • Legal name of parties engaged in the agreement;
  • Types of services provided;
  • Firm fees to be charged;
  • How fees are calculated;
  • Payment terms (advance/arrears; monthly/quarterly, immediate);
  • No Assignment clause;
  • Receipt of Form ADV Part 2 and Privacy Policy;
  • Termination clause;
  • Date of agreement;
  • Client(s) signature; and
  • Officer/CCO signature.

The firm will make every attempt to update current clients’ suitability information every three years.

1.4.2 New Client Account Review and Processing

A completed client agreement and custodian application form (where applicable) will be signed by the client. The CCO will review and approve all new client agreements and account opening documents.

All custodian-required documents will be promptly forwarded to the selected custodian for processing. Copies of all new account documents will be made and filed as described in following sections.

Any “above the line” (e.g., above the signature line) changes that are required for client agreements, addenda, or custodian account documents must be reviewed and approved (initialed and dated) by the client or their legal agent.

All client statements and confirmations will be sent to the client’s address of record. With the exception of firm or associate accounts, neither the firm nor any of its APs may be the sole address of record for any client documents, including accounts for immediate family members.

1.4.3 Investment Guidelines

The firm will attempt, when appropriate, to establish portfolio investment guidelines to assist in ensuring consistency with stated objectives and investment advisory activities provided. The document will also serve as a guide for the performance of the investable assets so that they can be compared and adjustments recommended as necessary.

1.4.4 Suitability Information

The firm will maintain written information about each client that had been used for the basis for making any recommendation or providing any investment advice. At a minimum, the client file/record will include:

  • Date of birth;
  • Financial information (i.e., liquid net worth, annual salary, etc.);
  • Employment information;
  • Marital status;
  • Investment objectives;
  • Investment experience;
  • Risk tolerance, and how such tolerance had been determined;
  • Tax bracket at the time of the recommendation or subsequent recommendations; and
  • Anticipated needs of the client.

1.4.5 Existing Clients

1.4.5.1 Account Changes

IARs will promptly inform the CCO or assigned staff member of any client account information required to be updated whenever they are aware of material changes. Updates may be recorded by making revisions to existing forms, system entries, file notes, or by completing new forms. Changes to client addresses, suitability information, or standing third-party payment requests must be approved in writing by the client as well as the CCO prior to effecting such change.

1.4.5.2 Review

Accounts are periodically reviewed throughout the year by the CCO or on an “as-needed” basis due to a material change in the client’s financial circumstances, changes in market conditions, or at the specific request of the client. It is the client’s responsibility to promptly notify the firm if there is any change in their financial situation or investment objectives for the purpose of reviewing, evaluating, or revising the firm’s previous recommendations or services. IARs should query clients throughout the year as to whether any noted or other information has changed or is anticipated to change in the near term.

The firm will not be obligated to perform ongoing client account reviews for those who have engaged the firm only for services as defined in its brochure and client agreement that are “incidental in nature” (one-time service).

1.4.6 Client Statements and Confirmations

The client will receive only those account statements and confirmations originating from the selected custodian, bank, or broker/dealer (“custodian of record”) engaged to serve their account. Neither the firm nor any employee or outside third-party shall be authorized to create or publish any alternative of the custodian of record’s account statement or confirmation documents.

1.4.7 Client File Information

The CCO or designee will ensure that every client has a record that contains pertinent client financial and investment objective information, as well as other client-specific information. Due to the services the firm provides, there are several kinds of client information that may need to be gathered and maintained.

Prior to engaging the firm to provide advisory services, the client will be required to enter into a written agreement that sets forth the terms and conditions of the engagement, describing the scope of the services to be provided. The client agreement will also state the advisory fees agreed upon, any discounts provided and why, and how the advisory service fee will be remitted to the firm. A copy of this agreement will be kept in the client file.

The following items should be created and kept in a client file (where applicable):

  • Copy of the executed client agreement. Signed by the client(s) and the CCO.

  • Any power of attorney, partnership agreement,corporate articles, etc.

  • Evidence of the initial delivery of the firm’s disclosure documents to client (including the date that the information was provided to client). Typically embedded into the client agreement.

  • Financial data or work-up on the client (may include financial statements, tax returns, etc.).

  • Investment policy statement or other similar record of client investment objectives.

  • Any due diligence used in order to render advice to the client.

  • Copies of correspondence between the firm and client, unless maintained elsewhere per CCO approval.

  • Client agreement termination notices from either party, when issued.

1.5 Matters Involving Custody

The firm will only have custody of individual client account assets to the extent it may request a qualified intermediary (the custodian of record) to deduct firm advisory fees from a client account. The firm will not take possession of individual client account funds or securities. The following procedures are designed to ensure the firm does not inadvertently obtain further custody over client assets:

  • Associates will never be granted general power of attorney for a client account;

  • All securities inadvertently delivered to the firm by the client will be promptly returned (same day but no longer than three days of receipt) via secure means with written instructions on how their securities must be submitted directly to the account custodian;

  • Third-party checks will be recorded and forwarded within 24 hours of receipt;

  • The firm will obtain prior written authorization from the client before deducting fees directly from the client’s account;

  • Client securities will not be made or held in the firm’s name or in “bearer” form;

  • Proceeds from the redemption of client securities may not be directed to the firm;

  • The firm will not have signatory power over a client’s checking or custodial account (unless it is a family member joint or custodial account);

  • An employee may not serve as trustee over a client’s account unless the client is an immediate family member of the employee and approved by the CCO and is within statutory guidelines;

  • All wires from client custodial accounts to third-party accounts must be preceded or accompanied by client written authorization; and

  • Inadvertent receipt of client securities or checks will be recorded in a “checks and securities received and forwarded log” (“check log”) as well as a description of the disposition or action taken.

1.6 Firm Trading Policy

Client needs and interests are paramount, and neither the firm nor any of its APs will engage in any activities that subordinate the interests of the client.

If there are specific limitations or restrictions established by a client, it will generally be recorded in the investment policy statement or other file memoranda, and the CCO will ensure such limitations and/or restrictions are followed.

The firm will make every effort to keep its clients informed of any information pertinent to the overall safety or status of accounts, or that may be useful for the overall financial knowledge and understanding of the client.

The firm will observe its obligations in regard to complete and fair disclosure to its clients regarding any existing or potential conflicts of interest that may impact any trading activity on behalf of its clients.

1.6.1 Discretionary Accounts

Discretionary authority allows the firm to enter transaction orders and/or select and reject sub-advisers on behalf of a client without contacting the client or their agent prior to each transaction or adviser selection. Key aspects of discretionary account requirements include:

  • Discretionary accounts require specific written authorization from the client, found within the client agreement and often also requiring use (and execution) of the selected custodian’s forms.

  • Discretionary authority is permitted on a limited basis, such as the authority to buy or sell securities or select a sub-adviser. Further exceptions require prior written approval of the CCO.

  • The firm will maintain a record identifying each discretionary client account and the period discretionary authority had been authorized.

The firm may provide its services on a non-discretionary basis. Clients need to be informed that such authority restricts transactions to occur until following their approval and that under this type of engagement, they must make themselves available and keep the firm apprised of current contact information so that transaction instructions can be efficiently effected. By definition, and absent written client instruction to the contrary, non-discretionary account transactions do not involve those with respect to a trade execution’s price or time.

1.6.2 Trust Accounts

Certain trusts and other accounts governed by legal instruments may not allow the trustee or agent to re-assign any authority to a third-party (i.e., the firm) or allow the trustee to act alone in an investment decision. Further, clearing/custodial trust certification of investment powers (TCIP) may not allow the firm adequate review of assignment authority. A copy of the trust agreement, investment powers statements (usually a section within the trust), and other legal documents should be provided to the firm for review (and record) prior to the approval of a trust or similar account, and in advance of its forwarding to a custodian when required.

1.6.3 ERISA Accounts

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry and provides protection for individuals in these plans. A “plan fiduciary” is generally deemed anyone with discretionary authority or control over the management of a plan, the administration of the plan, or the disposition of plan assets. Fiduciaries must comply with certain statutory duties which include prudence and diversification of investments and the duty to act in accordance with the governing instruments of the plan. Generally, trading in ERISA accounts is subject to the “Prudent Investor Rule” (formerly, the “Prudent Man Rule”). Allowable transactions are governed by ERISA (and related Department of Labor and IRS rulings), the plan’s investment policy statement, and trading guidelines for the account. This measure is not judged on the risk of a single investment but by the investment’s relationship to the overall portfolio. ERISA also requires that investments in a covered plan be diversified to minimize the risk of large losses unless it is clearly prudent not to do so. Any known or perceived conflict of interest involving the firm and an ERISA account must be disclosed prior to the engagement and throughout the engagement. The firm may choose to provide the conflict of interest via its current Form ADV Part 2.

1.6.4 Performance Review and Analyses

Periodically, the CCO or designee will conduct a review of select accounts utilizing appropriate systems, reports, or data as may be reasonably gathered to validate the firm and/or selected sub-advisers’ strategies, recommendations, and resultant data/account values assist in the basis for current and future portfolio strategies, consideration for the selection or dismissal of certain other investment advisers, etc. Observations should ensure the accuracy of historical performance data, random selection of client accounts, inclusion of terminated accounts during the review period, among others, to produce a more definitive report, selection, and/or strategy. The CCO is responsible for documenting the performance review, including a description of the systems utilized, data analyzed, results, and assessments. The review should be recorded and maintained on file for a period of no less than five years from the date of the report.

1.7 Asset Selection / Portfolio Management

The firm will seek the most favorable and appropriate asset selection and/or portfolio management techniques to achieve the desired goals of the client. On a periodic basis, the CCO will review a percentage of client accounts. The review will cover areas such as suitability, best execution (quality of execution), as well as consistency with client investment guidelines, firm trading policy, and securities law.

Model Portfolios – Safe Harbor
Rule 3a-4 of the Investment Company Act of 1940 provides a non-exclusive safe harbor that allows the firm to exclude certain similarly managed accounts, such as model portfolios the firm may recommend to its clients, from the definition of an investment company security (e.g., mutual fund), provided that each client receives “individualized investment treatment.” The conditions that must be met in order to fall under Rule 3a-4’s safe harbor are:

  • Each client’s account must be managed on the basis of the client’s financial situation and investment objectives, and any reasonable investment restrictions the client may impose;

  • The firm must obtain sufficient client information to be able to provide individualized investment advice to the client;

  • The firm and/or portfolio manager must be reasonably available to consult with the client;

  • Each client must be able to impose reasonable investment restrictions on the management of their account(s);

  • Each client must receive a quarterly statement with a description of all account activity; and

  • Each client must retain certain indicia of ownership of the securities and funds in the account (e.g., the ability to withdraw securities, vote securities if they choose to do so, etc.).

In compliance with Rule 3a-4, the CCO will ensure the firm meets the above-noted requirements in addition to providing quarterly written reminders to clients that they notify the firm of any changes in their financial situation, as well as an annual offer to clients to update their personal/account information.

1.8 Client Directed Brokerage

Our firm does not accommodate client-directed brokerage requests. As a result, the client may experience higher commissions or other transaction costs, experience greater spreads, or receive less favorable net prices on transactions. This information should be disclosed in Part 2A of Form ADV.

1.9 Aggregation and Allocation

Trade aggregation involves the purchase or sale of the same security for several clients/accounts at approximately the same time, and may also be termed “blocked, “bunched” or “batched” orders. Aggregated orders are typically effected in an attempt to obtain better execution, negotiate favorable transaction rates, or to allocate equitably among multiple client accounts should there be differences in prices, brokerage commissions or other transactional costs that might otherwise be unobtainable through separately placed orders. When trade aggregation is infeasible and necessitates individual transactions (e.g., withdrawal or liquidation requests, odd-lot trades, difficulty building a block trade involving non-discretionary accounts, etc.), an account may potentially be assessed higher costs or less favorable prices than those where aggregation has occurred. Clients must be informed via Form ADV Part 2A of the potential costs involving independent transactions.
The CCO will periodically review its trade procedures to ensure it remains within stated policies and/or regulation. The firm will notify clients in advance should policies change with respect to aggregated transactions.

1.10 Best Execution

The firm will use reasonable efforts to ensure that the client is receiving the overall best execution for their order. The circumstantial aspects involved in seeking best execution on a trade-by-trade basis for each account is generally not quantifiable. The firm will focus on establishing processes, disclosures, and documentation which together form a systematic and demonstrable approach in the aggregate – better known as “quality of execution” on behalf of all its clients. In seeking “best execution,” the determinative factor is not always the lowest possible cost but whether the transaction represents the overall best qualitative execution; taking into consideration the full range of a services, including the value of research provided, execution capability, rates, financial responsibility, and responsiveness.

Periodic back-testing may be conducted of actual executions in relation to the market prices in order to determine whether client orders are being filled at the best prevailing market price or, if not at the best market price, then to the level of the overall execution quality given the other services received in connection with the transaction. The CCO or qualified designee may choose to review a sampling of client orders for the most active trading day in an effort to ensure that the resultant price and overall execution results for the client is as favorable as possible under prevailing market conditions for the time of execution. A record of the sample selected will be kept to evidence the review.

The review may also include a report from the executing service provider showing the execution results by the firm and its client orders sent to the service provider; such as an SEC Rule 606 Report, to determine the overall performance of execution activities. Regardless of the method used by the firm, the CCO will maintain records evidencing effort to verify best execution on behalf of the firm’s client transactions.

1.11 Trading Error Corrections

1.11.1 Definition of a Trade Error

Trading errors generally include the following situations:

  • Inadvertently buying or selling the wrong security

  • Failing to buy or sell securities as intended

  • Buying, selling or allocating the incorrect number of shares

  • Buying or selling a security in the wrong account

  • Delays in trading within a client’s account as a result of firm actions or inactions

  • Allocating securities to the wrong account (i.e., during aggregated trades)

  • Buying or selling securities not authorized by the IPS or account restrictions

  • Failing to follow specific client instructions to purchase, sell or hold securities

Trade errors do not include administrative errors that are generally immediately correctable through communications with the custodian (such as a clerical error). All trade errors should be promptly corrected following discovery of the error and the client informed when appropriate. Generally, any losses are absorbed by the firm and client’s account will be reimbursed for the loss. Gains will be credited to the client’s account or donated to a charity of the custodian’s choice. Payments made to clients as a result of trade error correction are to be accurately recorded in the firm’s accounting records, and the firm will ensure it does not use fees from other accounts or soft dollars to correct a trade error.

1.11.2 Oversight and Documentation of Trade Errors

The CCO is responsible for documenting the trade error, including a description of the error, financial impact (if any), the client(s) involved, and resolution action(s) taken. The CCO will ensure an appropriate resolution is made for the trade error, which will include analyzing how the error occurred, whether a pattern exists which needs to be addressed, and that trends are eliminated.

1.12 Client Fees

All client fees will be noted in each client services agreement. The firm will facilitate billing via direct invoice and billing of custodial accounts. The billing method applicable to each of the firm’s clients will be delineated in each client’s advisory agreement, as well as general reference within the firm’s Form ADV Part 1 and 2. At no time will a traditional investment management account be assessed an asset-based fee exceeding two percent (2%) of the client’s assets under management. On a periodic basis, the CCO or designee will review a sample of client records for the purposes of reviewing the general consistency of the fees being charged to the client in comparison to the services noted in the client agreement. Should discrepancies be discovered, the CCO or designee will create a record detailing the steps taken to correct the situation, if needed.

1.13 Vulnerable Adults and Financial Exploitation

It is not uncommon that with aging comes diminished capabilities, including the inability to adequately manage financial resources, and a heightened susceptibility to financial exploitation. Protecting older investors as well as other vulnerable adults is a priority for our advisory firm.

A “vulnerable adult” is typically defined as a person 65 years of age or older and/or a “protected person,” any natural person over 18 years of age that is subject to state protections that include, but are not limited to: a person who suffers from dementia or other cognitive impairment, a person with intellectual and/or developmental disabilities, or any person over 18 years of age that is mentally or physically incapable of adequately caring for himself or herself and his or her interests without serious consequences to himself or herself or others.

Many states, as well as the SEC, require that investment advisers who reasonably believe that financial exploitation of a vulnerable adult may have occurred, been attempted, or is being attempted, must report the incident to either their securities commission, a department of human resources or similar authority, or law enforcement. Laws also authorize firms to delay a disbursement from an account when the requested disbursement may result in financial exploitation of a vulnerable adult, and permit notification of certain third parties. Firms that take these steps in good faith are generally immune from state civil and administrative liability. Our firm has developed a training program and internal procedures to equip personnel to recognize the signs and “red flags” that may indicate the need for such protections.

Firm personnel are in a unique position to identify cognitive decline or other potential impairments that affect clients, and our prompt actions may prevent a client from becoming the victim of financial exploitation. Detecting and recognizing the signs of cognitive impairment or diminished capacity begins with developing strong relationships with our clients. As part of our relationship building process, we will increase the frequency and quality of communication with aging clients, looking for signals of potential cognitive impairment issues, such as lapse of memory, disorganization, arithmetic mistakes, conceptual confusion, or diminished judgment. Because of slow onset or geographic separation, it may be difficult for family members to recognize these changes or notice unusual financial activities that might indicate that a client is being exploited.

Mental capacity is a fluid concept that changes over time and depends on each person’s situation. Our firm defines “financial capacity” as the capacity to transact certain business, such as: understanding one’s personal financial needs and goals, understanding investment product choices, contracting for the purchase of a particular investment, or giving a particular professional the discretion to manage an account. Studies have shown that as cognitive decline advances, financial risk-taking often increases, and the ability to manage resources is compromised.

Our clients may be reluctant to talk about cognitive decline but may be willing to discuss what to do with their finances in the event of a medical or other emergency. Discussions in this context provide an avenue to discuss powers of attorney and other advanced directive options. Ideally, these types of discussions take place upon account opening, at regular intervals thereafter, and as circumstances dictate. Ongoing communication with each client is critical both to establish a baseline from which to assess any changes in behavior or cognitive decline, and to recognize when protective measures may become necessary.

1.13.1 Staff Training

Annually, the Chief Compliance Officer will require that all staff complete vulnerable adult training that equip firm personnel with the tools necessary to recognize red flags and other warning signs that may leave a client vulnerable to financial exploitation. The training program will be designed to teach staff on how to detect signs of diminished capacity, cognitive decline, and financial impairment. Topics covered will include:

  • Assisting staff to recognize the various signs and/or red flags (examples below) of cognitive impairment;

  • Developing tips and strategies on how to communicate with clients experiencing diminished capacity, to include discussing the subject of powers of attorney and other advanced directives;

  • How to ask appropriate questions while still maintaining the client’s sense of autonomy and dignity;

  • How the firm places “watches” on an account when there is a suspicion that a client may be vulnerable;

  • Documentation procedures following contact with senior clients when they have problems with lack of recall or need assistance with resolving a misunderstanding; and

  • Firm escalation procedures so that staff are able to document suspected diminished capacity.

The Chief Compliance Officer will consider incorporating existing training materials developed by state agencies and NASAA’s “Senior$afe” training program into the firm’s sessions.

1.13.2 Identifying Cognitive Decline “Red Flags”

It is important for staff to spot the signs of cognitive decline or a reduced capacity to handle financial decisions. While no definitive list exists, the following red flag examples of diminished capacity or cognitive decline are:

  • The client appears unable to process simple concepts, such as:

  • a decline in the ability to do simple math problems

  • difficulty in understanding important aspects of their account

  • difficulty with checkbook management

  • confusion and/or loss of general knowledge regarding basic financial terms and concepts such as mortgages, wills, annuities

  • A client’s behavior is erratic, including:

    • memory loss

    • difficulty speaking or communicating

    • inability to appreciate the consequences of decisions

    • disorientation with surroundings or social settings

    • uncharacteristically unkempt appearance

  • The client exhibits impaired judgment about investments or the use of money, including:

  • expressing interest in “get rich quick” schemes

  • anxiety about the nature and extent of their personal wealth

  • making decisions inconsistent with their current long-term goals or commitments

  • refusing to follow appropriate investment advice

  • failure to fulfill financial obligations such as paying bills, or paying the same bill twice

1.13.3 Detecting Financial Exploitation

Our firm defines the term “financial exploitation” broadly to include the wrongful or unauthorized taking of property, and any act or omission taken by a person, or through a power of attorney, guardianship, or conservatorship, with the intent to deprive a vulnerable adult of property. It is important that staff is familiar with the acts that constitute financial exploitation and that personnel are trained to identify the signs of financial exploitation. Signs that a vulnerable client could be the victim of financial exploitation include:

  • Uncharacteristic and repeated cash withdrawals or wire transfers

  • Appearing with new and unknown associates, friends, or relatives

  • Uncharacteristic nervousness or anxiety visiting firm offices or conducting telephonic transactions

  • Lack of knowledge about his or her financial status

  • Staff having difficulty speaking directly with the client

  • Unexplained or unusual excitement about a sudden windfall or reluctance to discuss its details

  • Sudden changes to financial documents such as powers of attorney, account beneficiaries, wills, or trusts

  • Closing of accounts without regard to penalties

1.13.4 Reporting Financial Exploitation

It is expected that firm personnel provide a report and any supporting documentation within 24 hours of the known or suspected vulnerable adult maltreatment. The report will be provided to the Chief Compliance Officer and, at a minimum, the report will contain:

  • client name
  • relevant dates
  • description of event(s) that led to report
  • description of steps taken or expected to take to date in response to the event
  • relevant documentation related to potential financial exploitation to ensure firm and outside agencies receiving the report have all necessary information to evaluate the report

When there is reasonable belief that a client has been the victim of financial exploitation, our firm has an obligation to report this information to law enforcement who are authorized to receive and investigate reports of suspected abuse, neglect, and exploitation of adults who are suspected of being physically or mentally unable to protect themselves, and to arrange protective services, including guardian and conservatorships, to the extent possible when protection is needed. Reporting will be completed by the Chief Compliance Officer.

1.13.5 Notifying Third Parties of Potential Financial Exploitation

Developing strong relationships with our clients is one of the most important weapons in the detection of diminished capacity and in the fight against financial exploitation. Building strong client relationships and planning for more than simply the client’s “technical financial future” before potential issues arise is critical, and particularly important as it relates to third-party notification and advanced directives that memorialize a client’s preferred course of conduct when faced with diminished capacity or financial exploitation.

Clients should be encouraged to use the firm’s “Permission to Share Information – Suspected Cognitive Decline or Financial Exploitation” form, particularly if other advanced directives, powers of attorney, etc., have not been prepared. These discussions should be thoroughly documented in client file notes. If a client declines to complete the “Permission to Share Information – Suspected Cognitive Decline or Financial Exploitation” form, file notes should reflect that as well as provide a thorough summation of the discussion and the client’s stated reason for not completing the form. As with any client relationship, if a client’s attitudes or patterns of behavior impair the firm’s ability to act in the client’s best interest, the firm may consider escalation of the discussion to a firm principal, and even termination of the engagement if deemed appropriate.

It is important that firm personnel stress to their clients that our firm must have a copy of a current, executed directive in order for the firm to effectively address a financial exploitation event. Staff are charged with knowing the location of each client’s directive in the client’s file, and the investment adviser representative assigned to the client will no less than annually ensure that they have confirmed with their client that the information in the directive is current and accurate.

Our use of a “designated trusted contact” allows our firm to notify certain additional third parties, without the client’s consent, when a report is about to be or has been made to authorities. Specifically, our firm is authorized to notify any of the following individuals: a legal guardian, conservator, co-trustee, successor trustee, agent under power of attorney, or other “reasonably associated individual.” The decision to notify a third party lies with the Chief Compliance Officer who will make a determination as to whether it is appropriate pursuant to state/federal regulations and firm policy to notify a trusted third-party about unusual or potentially exploitative activity occurring in a vulnerable adult’s account.

Sharing financial and other potentially sensitive information with someone other than a client is a sensitive matter and raises privacy concerns. Federal privacy laws generally prohibit the sharing of financial information unless a client has consented, or another exception exists under current regulation. Sharing sensitive financial information with third parties, including family members, presents additional challenges since the firm may not know all details of the vulnerable adult’s relationship with a third-party or family member. While some state statutes allow third-party notification of closely connected individuals, in addition to trusted third parties who have been designated in writing or are on the account, the Chief Compliance Officer will determine the appropriate third-party contact based on the relationship of the associated person with the client and with the knowledge of the client’s family, relatives, close contacts, etc.

1.13.6 Delaying Disbursements in Situations of Potential Financial Exploitation

Delaying or placing a temporary hold on a disbursement from a vulnerable adult’s account in an effort to prevent losses from financial exploitation is an important and very effective tool. Given the potential and unintended consequences of delaying disbursements, the Chief Compliance Officer will determine if such a delay complies with state law and that it is used only in limited and appropriate circumstances.

The firm will immediately, and in no event more than two business days, notify all parties authorized to transact business on the account that the account is subject to a delay or temporary hold on a disbursement from the vulnerable adult’s account. In addition, and within the same time frame, the Chief Compliance Officer must notify authorities per that jurisdictions reporting mechanism of the disbursement delay or temporary hold. Firm personnel must ensure that notifications are not sent to the suspected perpetrators of the financial exploitation.

The firm must carefully monitor the timing of delayed disbursements to ensure that funds are not withheld longer than permissible. Reasonable time is allotted, however, to allow the firm and investigating agencies to conduct a review of the transaction. The authorized time limitations on delaying disbursements are determined by the state in which the client resides and, typically, a delay expires upon the sooner by either a determination by the firm that the disbursement will not result in financial exploitation, or 10 business days after the date of the delay unless authorities request that our firm extend delay. In no instance should the delay extend beyond 30 business days unless judicial intervention is sought by either state agency, law enforcement, the firm or other interested party.

1.13.7 Access to Records

Maintaining records relating to the vulnerable adult’s account is critical to detecting and combatting financial exploitation. In financial cases, records are often the primary evidence of wrongdoing. The Chief Compliance Officer will control the access to these records by investigating agencies in order to allow a thorough investigation of the case.

Owner: srvo
Last reviewed: 2025-09-24
SLA: N/A
Controls: compliance-manual
Commit: 8f0c18729ae96125ef5caf6824600a75c4928c16