Regulators Seek to Protect Senior Investors from Financial Harm

FINRA is expanding its protection of senior investors and has recently received approval from the SEC for related rule changes. FINRA Regulatory Notice 17-11, “Financial Exploitation of Specified Adults”, new Rule 2165 and amendments to Rule 4512, scheduled to go into effect on February 5, 2018, will amplify existing protections for senior investors.

As the baby boomer generation continues to reach retirement age, investors over the age of 50 are now holding 77% of U.S. personal financial assets. FINRA and the SEC have certainly taken notice of the increased numbers of senior investors, and also alarming trends concerning financial fraud committed against these investors. According to statistics provided by SIFMA, 1 in 5 seniors is a victim of financial fraud, resulting in $2.6 billion in losses.

FINRA has introduced these new rules and programs, such as the Securities Helpline for Seniors and the National Senior Investors Initiative, to deter any fraudulent activity directed at senior investors. For instance, the Securities Helpline for Seniors gives senior investors a toll-free number and FINRA representative to whom they can voice concerns regarding their brokerage account and investments. Securities and investment products most associated with elder abuse are variable annuities, mutual funds with high Class A fees and complex exchange traded products that use leverage or are inverse.

FINRA Rule 4512 has been amended to require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a senior customer’s account. Now, when opening an account or updating customer account information for a non-institutional account, a financial advisor with a client over age 65 must make a reasonable effort to obtain the name and contact information of a person that the financial advisor can contact to confirm any suspicious account activity. Brokers must make the contact information disclosure in writing to the client.

Per guidance from Regulatory Notice 17-11, FINRA is also implementing Rule 2165 to permit brokerage firms to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers. Many firms have already implemented this practice and have placed holds whenever a large cash withdrawal is requested in an account belonging to an investor age 65 or older. The hold may only be placed on suspicious disbursements and does not apply to transactions in the account.

If a temporary hold is placed on a customer account after a suspected fraudulent withdrawal or to prevent such a withdrawal, the broker dealer is required to conduct an internal review. Rule 2165 also mandates that the brokerage firm contact the trusted contact person, no later than 2 business days after the date that the member first placed the hold. A broker dealer must also have written procedures for supervision of contact protocol in the event of suspected fraudulent activity. Procedures for associated persons must also be in place to ensure compliance with the requirements of the new rules for senior investors.

This new FINRA guidance offers essential takeaways for brokers and investment advisors. If you’re a small brokerage firm or an independent investment advisor, trying to navigate the new requirements for handling senior investors, you should contact an experienced securities attorney for a consultation.

If you’re a senior investor concerned with fraudulent activity in your account, call the toll free FINRA Helpline which is at your disposal Monday through Friday (844-574-3577). You should also contact experienced securities attorneys such as Lubiner, Schmidt & Palumbo for a consultation.