Two new rules the Financial Industry Regulatory Authority (FINRA) adopted last year with Securities and Exchange Commission (SEC) approval took effect on February 5, 2018. According to FINRA’s Chief Legal Officer, the changes are intended to “provide firms with tools to respond more quickly and effectively to protect seniors and vulnerable investors” in an effort to address the “serious and growing problem” of financial exploitation of these investors.
The new rules allow investment advisors to place holds on certain transactions where they have concerns about financial exploitation, and they call for advisory firms to make reasonable efforts to identify a “trusted contact person” who is authorized to make decisions on a senior or other vulnerable investor’s behalf.
Answers to FAQs Regarding Financial Exploitation of Seniors and Vulnerable Investors
Along with its announcement of the new rules, FINRA published a list of FAQs for advisors and advisory firms working with senior and vulnerable investors. While the FAQs are designed to help advisors and advisory firms meet their new obligations, they provide some useful information for senior investors and their loved ones as well. For example:
1. Transactions that Advisors Can Place on Hold
Under the new rules, an investment advisor can, “place a temporary hold on a disbursement of funds or securities from the account of a specified adult if the [advisor] reasonably believes that financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted.” However, while the rule applies to disbursements, it does not apply to securities transactions (such as the sale of shares in a senior investor’s portfolio).
2. Putting Entire Accounts on Hold
Although the new rules require advisors to examine individual disbursement requests for signs of potential financial exploitation, they allow advisors to place investors’ entire accounts on hold under certain circumstances. However, before placing an investor’s entire account on hold, the advisor must ensure that there are mechanisms in place to allow for legitimate disbursements.
3. Identifying a “Trusted Contact Person”
The “trusted contact person” rule is designed to allow family members and other caretakers to communicate with investment advisors on behalf of seniors and other vulnerable investors. A trusted contact person must be 18 years of age or older, but the new rule “does not restrict any natural persons from being named as trusted contacts. A trusted contact can include a “joint accountholder, trustee, individual with power of attorney [or anyone else] authorized to transact business” on a senior’s or vulnerable investor’s account.
4. Disclosure of Information to a Trusted Contact Person
Once an investor has appointed a trusted contact person, his or her advisor may communicate with the trusted contact, “to address possible financial exploitation, to confirm the specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney, or as otherwise permitted [by FINRA rules].” This includes communicating with a trusted contact person to obtain updated contact information, inquire about mental health disorders and seek information about suspect disbursement requests prior to placing a hold on the investor’s account.
Experienced FINRA Attorneys for Senior and Vulnerable Investors
Our FINRA attorneys are committed to fighting for senior citizens and other vulnerable investors who have lost money due to investment fraud and financial exploitation. If you have questions about the protections available to individual investors, or if you would like to speak with an attorney about seeking to recover fraudulent investment losses through FINRA arbitration, please call (646) 663-5628 or contact us online to schedule a free initial consultation.