The Financial Industry Regulatory Authority, universally known as FINRA, is a not for profit organization (not a government agency) that regulates member brokerage firms and the brokers that deal with the public. All securities firms that are not regulated by another self-regulatory organization (the New York Stock Exchange, for example) are required to be a member of FINRA. A Securities Helpline for Seniors (844-57-HELPS) is currently maintained by FINRA, through which older investors can seek assistance for issues relating to brokerage accounts.
In response to the growing problem of financial exploitation of seniors, the Securities and Exchange Commission has approved the adoption of new and amended FINRA rules on the subject, effective February 5, 2018. The new rules have two components:
- It permits member firms to place a temporary hold on disbursements from customers’ accounts when there is a reasonable belief that there could be financial exploitation of the customers.
- It requires FINRA members to obtain contact information for a trusted contact person for customers’ accounts.
Here are a couple of points to remember:
1. There is no obligation to withhold disbursements, but there is authorization to do so if the member firm reasonably believes that there could be a problem of financial exploitation.
2. But only with respect to “specified adult” customers. This is defined as any person age 65 or older or any person who the member reasonably believes is unable to protect his or her own interests because of a mental or physical impairment.
3. What is financial exploitation? The term is broadly defined as (1) the wrongful taking or use of a specified adult’s funds or securities or (2) any act or omission, including by the use of a power of attorney or guardianship, with respect to a specified adult, to obtain control through deception, intimidation or undue influence over such adult’s property or to convert it.
4. The temporary hold on disbursements may last up to 15 business days and may be extended a further 10 days if the member’s review of the situation suggests that financial exploitation is occurring.
5. The FINRA member must make a reasonable effort to obtain the name and contact information for a trusted contact person when an account is opened or when an existing account is updated. The member is authorized to contact the trusted contact person and disclose information if it believes there might be financial exploitation.
This rule issuance is a helpful step in protecting seniors, and there are other agencies and organizations on the federal and state levels making similar efforts. More work is needed to ensure that seniors can enjoy the assets they have accumulated for their retirement years without the risk of losing them through financial exploitation.