Understanding FINRA’s Elder Abuse Proposal

In late 2016, the Financial Industry Regulatory Authority (FINRA) submitted a proposed new rule to the Securities Exchange Commission (SEC) meant to protect older adults and other vulnerable populations from financial scams.

Under the proposed new rule, financial firms would have the right to place temporary holds on clients’ accounts when they suspect that financial exploitation could be occurring. These holds would prevent the disbursement of money or securities until the firm confirms the trade with the listed contact person on the client’s account.

In 2017, FINRA Rule 2165 was accepted.

Securities fraud can rob an innocent victim of thousands, hundreds of thousands, and even millions of dollars. Financial advisors have the duty to protect their clients from harm and with FINRA’s proposed new elder abuse rule, can be better-equipped to uphold this duty.

Proposed New Rule for FINRA

Rule 2165 will require investment brokers to make a reasonable effort to identify a trusted contact for customer accounts belonging to elderly and impaired individuals. A trusted contact might be the client’s legal guardian, the party with financial power of attorney for the client, or even the client’s adult child or other relative who can recognize efforts to defraud the client.

When a broker suspects financial abuse, he or she can freeze any financial disbursements from the client’s account until the trusted contact is notified and determines whether the transfer is legitimate. Currently, investment brokers do not have the right to freeze clients’ accounts when abuse is suspected.

Critics of the rule claim that although it has noble intentions, it places too much responsibility on brokers to determine their clients’ competency levels and to screen activity for potential instances of fraud. It also can have the potential to force brokers into their clients’ personal business, such as interpersonal loans and gifts to loved ones.

Who is At Risk of Being Exploited?

FINRA name adults age 65 and older and any adults with physical or mental impairments that “render them unable to protect their own interests” as individuals who will benefit from this new rule when it becomes effective in 2018. In 2015, FINRA launched its Securities Helpline for Seniors, which has since received nearly 7,000 calls.

A few examples of financial scams aimed at seniors and impaired adults include:

• Offers to safeguard an individual’s savings through a fraudulent account, such as a pyramid scheme;
• Claims that the individual has inherited money or assets from a distant relative, sometimes known as “Nigerian Prince” scams; and
• Reverse mortgage offers.

The Approval Process

All proposed FINRA rules must be approved by the SEC. The Securities Exchange Commission oversees all securities regulation in the United States. It was established by the Securities Exchange Act of 1934 and today, enforces this and other laws related to the securities industry such as the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Securities Act of 1933, the Trust Indenture Act of 1939, and the Investment Advisers Act of 1940. A few of its responsibilities include:

• Proposing new securities laws;
• Regulating the securities industry through cooperation with self-regulatory groups like FINRA and the Securities Investor Protection Corporation (SIPC); and
• Working with law enforcement agencies to enforce securities laws.

What you Can Do to Protect yourself and your Loved Ones from Financial Abuse

In addition to Rule 2165, there are steps you can take to protect yourself and your loved ones from financial abuse. Take the time to educate yourself about safe investing and discuss what you learn with your close relatives, both older and younger than you. A few tips to follow to keep yourself and your family safe include:

• Create joint accounts. Granting another party access to an at-risk loved one’s financial accounts can be an easy way to protect the individual from fraud. With a joint account, both parties can view any transactions made and stop any checks or charges;
• Add an at-risk loved one’s name to the Federal Trade Commission’s Do Not Call list to keep him or her away from telemarketers and phone scams; and
• Make yourself a frequent presence in your loved one’s life. By visiting often and engaging with him or her, you can gauge his or her physical and mental health status while providing intellectual and social stimulation, which can reduce his or her chance of falling prey to financial scams.

Work with an Experienced Florida Securities Fraud Attorney

Our team at Sonn Law Group is passionate about protecting your rights as an investor. Whether you are new to investing or a seasoned investor with a decades-old portfolio, you can become a victim of exploitation and other financial crimes. Our team of securities fraud attorneys can help you recover your damages and protect yourself from future fraud.

To learn more, schedule your initial consultation with a member of our firm. We are located in Miami and serve clients throughout the United States, Puerto Rico, and South America.