SEC approves new FINRA rule designed to protect seniors from financial exploitation. Will firms follow through?
The US Securities and Exchange Commission (SEC) has approved a new FINRA rule to protect seniors and other specified adults from financial exploitation. The new rule will take effect on February 5, 2018.
- FINRA broker-dealers will be required to maintain a record of the name and contact information for a Trusted Contact Person who may be contacted about a customer’s Account
- FINRA broker-dealers will place a temporary hold on the disbursement of funds or securities from the Accounts of certain customers if there is a reasonable belief that the customers may be subject to financial exploitation.
According to FINRA, approximately 10,000 Americans will turn 65 every day over the next decade, with their investments accounting for more than 75 percent of all financial assets in the United States. These assets, coupled with rising life expectancies and the potential cognitive effects of the normal aging process, make seniors a prime target for financial exploitation.
The elderly population is rising.
As the elderly population continues to grow rapidly, the financial services sector can expect a significant increase in elder financial exploitation attempts. Regulators view financial professionals as a first line of defense against threats to this vulnerable group of investors. Both FINRA and the SEC have identified senior financial exploitation as examination priorities.
The measure requires firms to make a reasonable attempt to collect information for a trusted third-party contact for investors and allows brokers to halt disbursements from accounts of clients they think are being taken advantage of.
According to the SEC order, “These measures will assist members in thwarting financial exploitation of seniors and other vulnerable adults before potentially ruinous losses occur,”
Will brokerage firms enforce the new FINRA rule?
Now it’s up to firms to follow through. The new FINRA rule allows brokers to put a hold on accounts of potential abuse victims but doesn’t include penalities for those who fail to take that action. –It doesn’t actually require firms to do anything. Additionally, there’s no disclosure to the public to identify the firms that commit to protect seniors if they suspect exploitation.
As the SEC approves the FINRA rule, several states will consider this year approving their own rules that would require financial advisers to report suspected senior financial abuse to authorities. Those regulations are likely to be based in part on a model rule developed by the North American Securities Administrators Association, according to Investment News.
Brokerage firms are required to adequately supervise their advisors. They must ensure they are complying with FINRA rules.
When brokers abuse client accounts and conduct transactions that violate securities laws, the brokerage firm they are working with may be liable for investment losses. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.
The brokerage firms can be held responsible for any losses in a FINRA arbitration claim if it is determined that they failed to properly supervise their agent.
If you suffered losses investing with a brokerage firm, the attorneys at The White Law Group may be able to help you. For a free consultation, please call (888) 637-5510.
The foregoing information, which is all publicly available, is being provided by The White Law Group.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee. For more information, please visit our website, www.whitesecuritieslaw.com.