In March 2017, the Financial Industry Regulatory Authority (FINRA) received approval from the Securities and Exchange Commission (SEC) to adopt two rule changes designed to help protect senior investors against investment fraud. The changes focus on preventing unauthorized access to investors’ accounts and preventing disbursements from investors’ accounts when there is an apparent risk of financial exploitation. The amended rules will take effect on February 5, 2018.
New FINRA Rules to Take Effect in 2018
1. Reasonable Efforts to Identify a “Trusted Contact Person”
The first rule change will require brokers to, “make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account or when updating account information. . . .” This concept of a “trusted contact person” is new under FINRA’s rules, and is intended to provide advisors with a way to authenticate and verify requests to make changes to or disburse funds from an investor’s account. While senior investors will not be required to identify a trusted contact person, FINRA believes that the new rule will benefit seniors in situations such as those where:
- A broker has a specific concern about possible financial exploitation
- A broker is unable to reach a senior investment client
- A broker advisor believes that a senior investor may be ill, infirm, or suffering from diminished capacity
2. Temporary Holds on Account Disbursements
The second change will allow brokers to place a temporary hold on disbursements from a senior investor’s account where they, “reasonably believe  that financial exploitation has occurred, is occurring, has been attempted or will be attempted.” Advisors will not have an obligation to withhold disbursement of funds or securities under such circumstances, but rather will be able to do so in their discretion. The rule defines “financial exploitation” broadly to include:
- “[W]rongful or unauthorized taking” of a senior investor’s funds or securities; and,
- Use of “deception, intimidation or undue influence” by a person with a power of attorney, guardianship or other actual or purported authority over a senior investor’s account.
Investor Advisor Fraud Remains a Concern as Well
While issues such as investment scams and unscrupulous caretakers seeking to exert undue influence for personal financial gain are unfortunately very real concerns for senior investors, seniors and their loved ones also need to be careful not to blindly trust their brokers. For example, FINRA recently reported a case in which a broker made approximately $15 million in unauthorized and unsuitable trades on behalf of a 73-year-old retiree while charging more than $375,000 in improper fees and depriving the investor of substantial retirement income. Cases like this in which brokers and investment advisors specifically target seniors result in untold losses every year, and it is imperative that senior investors regularly review their account statements for possible signs of fraud.
Zamansky LLC | Committed Advocates for Senior Investors
Zamansky LLC is a national law firm that represents investors who have lost money to investment scams and broker fraud. If you or a loved one has experienced sudden and unexpected losses, you may be entitled to financial compensation through securities arbitration with FINRA. For more information, call (212) 742-1414 or contact us online to speak with a lawyer for free today.