Financial technology (FinTech)—which delivers innovations in banking, investing, and insurance—has had a large impact on America’s financial-services consumers. But it is also posing risks to the public, especially to millennial consumers, according to a new survey of securities regulators from the North American Securities Administrators Association (NASAA).

NASAA’s recent Pulse Survey of state and provincial regulators in the United States, Canada, and Mexico revealed that one-third (34 percent) believed the rapid development of financial technology is a positive development for investors. However, 20 percent expressed concern over the potential negative impact on investors.

Roughly one-half (46 percent) of regulators said it was too early to know for sure, but cited benefits such as lower costs and greater accessibility to investments among clients not previously accessed via traditional methods. Still, they believed it was crucial to have strong investor protections in place so that greater access does generate greater fraud risks.

According to Investopedia, the FinTech landscape is especially wide-ranging. It includes:

  • Cryptocurrencies and digital cash.
  • Distributed ledger technologies (blockchain).
  • Smart contracts (using computers to automate contracts between buyers and sellers).
  • Open banking (joining banks to third-party providers such as Mint).
  • InsurTech (streamlining the insurance industry).
  • RegTech (applying technology to regulatory compliance).
  • Robo-advising (using algorithms to deliver investment advice without face-to-face human involvement.
  • Unbanked/underbanked (providing financial access to populations that traditional banks and insurers ignore).
  • Cybersecurity (assuring that fintech applications and data are protected against cyber-criminals.

Other findings from the NASAA survey are as follows:

  • Millenials have the greatest risk of fraud. The regulators viewed Millennials (consumers reaching young adulthood in the early 21st century) as the most likely consumer group to use FinTech products (84 percent). But they also believed they are the most likely to become  fraud victims (41 percent). Meanwhile, Baby Boomers were seen as the least likely to use FinTech, but the second most likely to become victims (37 percent).
  • Some FinTech is riskier than others. Regulators viewed financial technology as having a high (28 percent) or moderate (72 percent) chance of fraud. But risks were perceived to be high for specific applications, including initial coin offerings (ICOs) and cryptocurrencies (94 percent) and low for others (3 percent for robo-advising).
  • Fraudsters have the edge. Not surprisingly, more than half of regulators (56 percent) said fraudsters were the most knowledgeable about FinTech and that consumers were the least knowledgeable (94 percent).
  • Regulators and law enforcement have their work cut out for them. Three-fours of survey respondents (75 percent) said they believe preventing FinTech fraud is getting more difficult.

“The survey results show that our members are focused on the potential for fraud when it comes to new technologies and products,” said Joseph P. Borg, NASAA President and Alabama Securities Commission Director. “But the results also reflect recognition that these innovations may benefit investors, which makes appropriate regulation and investor education critical.”

Are your customers heavy or light users of FinTech? In either case, now may be a good time to warn them about the dangers of using such tools without sufficient understanding of the risks involved.

For complete survey results, go here. Or to watch a NASAA video about the risks of cryptocurrencies and ICOs, go here.


Continue to keep up to date with ethical practices by reading the latest news on  National Ethics AssociationFor information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com.

Financial institutions, advisors, and regulators can all do more to protect America’s seniors against financial fraud. That’s the conclusion of a new survey of state securities regulators by the North American Securities Administrators Association (NASAA).

According to its survey of 36 state regulators, most (97 percent) believe the majority of cases of senior financial fraud go undetected rather than get discovered before they cause serious problems.

The same percentage—97%—say there’s a greater awareness of senior investment fraud today than there was a year ago. However, that hasn’t translated into a widespread decrease in senior fraud complaints. Sixty-nine percent said they have experienced about the same rate of senior fraud, while 29 percent said their cases have increased and 3 percent said they’ve decreased.

The results come from NASAA’s recent Pulse Survey conducted on member regulators from July 24 to August 4, 2017.

The survey also uncovered broad support for the notion that broker-dealers and investment advisors should do more to help prevent senior fraud, with 75 percent agreeing with that statement. The survey respondents also said state legislators could play a larger role since only 48 percent of jurisdictions had adopted NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. Yet those who had enacted the rule said they’d had success stopping the disbursement of senior funds to scammers using the law’s provisions.

What more can securities brokers and investment advisors do? A prior NASAA study provides an action blueprint for securities brokers and their broker-dealer firms to consider:
• Institute a formal policy defining senior clients and, if so, what age designates senior status.
• Create a department, committee, task force, or other group or person responsible for identifying and addressing senior-related issues.
• Devise a policy to collect information about trusted or emergency contacts.
• Determine what additional documents required when opening or updating accounts for senior customers.
• Establish a policy that sets frequency standards for reviewing, updating, and documenting senior investment objectives.

• Define a process for reporting concerns regarding potential diminished capacity and/or elder financial abuse.

The National Ethics Association also suggests that advisors consider it their fiduciary duty to take extra care when working with senior clients. They should do their best to act prudently regarding their resources, to do rigorous due diligence before any proposed actions, and to act in good faith at all times. Related to this is a special duty to help seniors stay safe in a dangerous marketplace.

The protective role suggests a more aggressive educational and counseling stance with senior clients than might be warranted with younger clients. The National Adult Protective Services Association suggests advisors watch for the following scams that strangers, financial/business professionals, and family members often perpetrate on seniors.

Common Scams by Strangers
Lottery & sweepstakes scams—“You’ve already won! Just send $2,500 to cover your taxes”

Home repair/traveling con men—“We’re in your area and can coat your driveway/ roof really cheaply”

Grandparent scam—“Your grandchild is in jail and needs you to send money immediately”

Charity scams—Falsely soliciting funds for good causes; very common after disasters

Utility company scams—“I need you to come outside with me for a minute” (while accomplice steals valuables)

House scams—Overpriced or unneeded roof or driveway repairs, yard work, or other maintenance items.

Phone scams—fraudulent telemarketing appeals, phony IRS accusations, or other threats

Money-transfer schemes—Pitches to have senior send money via PayPal or other means to fraudster accounts.

Common Scams by “Professionals”
Predatory Lending—seniors pressured into taking out inappropriate reverse mortgages or other loans

Annuity sales—seniors pressured into using the equity realized from a reverse mortgage (or other liquid assets) to buy an expensive annuity which may not mature until they are well into their 90s or older.

Investment/securities schemes—pyramid schemes; unrealistic returns promised; dealer is not licensed

Internet phishing—false emails about bank accounts

Identity theft—credit cards opened fraudulently

Medicare scams—which can be the costliest in terms of the dollar amounts

Common Ways Family Members and Trusted Others Exploit Vulnerable Adults
Using a Power of Attorney—given by the victim to allow another person to handle his/her finances, as a license to steal the victim’s monies for the perpetrator’s own use

Joint bank accounts—taking advantage in the same way

ATM cards and checking accounts—using those vehicles illegally to access and withdraw a senior’s money.

Violence—threatening to abandon, hit or otherwise harm victims unless they give the perpetrators what they want

Medical Blocks—refusing to obtain needed medical care and personal services for the victim in order to keep the senior’s assets available for theft

In-home care providers—Charging for services, keeping change from errands, asking the vulnerable adult to sign falsified time sheets, spending work time on the phone and not doing what they are paid for

Finally, according to EOforLess, an online provider of E&O insurance for financial professionals, failing to detect obvious signs of senior financial exploitation might raise legal issues for advisors should their clients’ money be stolen. As always, EOforLess urges life insurance agents and investment advisors to identify and mitigate the risks of working with older clients and their families.

In ancient Greece, the famed philosopher Diogenes walked the daylight streets with a lantern in search of an honest man. In your work as a financial professional, do you ever feel the same way . . . that way too many of your customers have lost touch with the truth? If so, you’re not alone.

In the sales process, prospects often tell “white lies” to deflect you. They say they can’t meet with you because of their doctor’s appointments (no such thing), their existing products or services (no such things), or their relationship with another provider (no such brother-in-law). If you do get to meet with them, they may tell more serious lies, such as hiding material information or masking their true motivations for buying insurance or investments.

Now, don’t get us wrong. The vast majority of customers are truthful. But the lying happens often enough to get under your skin. In fact, as one businessperson commented, “You don’t know whether to laugh or to get mad at clients for thinking you are stupid.”

What’s more, deceitful customers pose a risk to your business. If they’re willing to lie to you, what does that say about their character? Would they also be willing to fabricate an errors-and-omissions claim for personal profit?

So what do you do when a prospect or customer lies to you? The answer depends on your assessment of the magnitude—and context— of the lie. For example, if a prospect gives you a phony excuse for breaking an appointment, do you simply banish them from your prospect list? Probably not, since if you did this with every fibbing prospect, you wouldn’t do much business. Rather, try to view such “white lies” as buying objections. As such, you want to meet them head on, respond to the underlying concern, then attempt to close the sale again.

If a lie is serious—for example, generating false information that hinders the appropriate sale of your product or service—then watch out. People who tell such lies are trouble magnets. You ultimately need to consider whether they’re worth dealing with and whether you want to jeopardize your errors-and-omissions record on their behalf.

So the next time a prospect or client lies to you, take a deep breath, then . . .

  • Give the person the benefit of the doubt. Don’t automatically assume someone is lying. Probe to see if there’s a misunderstanding.
  • Call the lie out. When you hear a lie, don’t just let it pass. Let the client know that it’s in both of your best interests to be completely forthright. Then ask for a clarification.
  • Encourage the individual to come clean. When the person admits to lying, give them another chance. If the lying persists, reconsider whether you want him or her as a customer.

Finally, don’t be afraid to keep your truth lantern lit during the day. Like Diogenes, you want the world to know how much you value the truth—and welcome those who speak it.

For more information on reducing your errors-and-omissions insurance liabilities, please visit our E&O Headquarters at EOforLess.com.