With every baby boomer in America turning age 65 by 2030, Finra is moving to step up protections for senior investors by proposing a rule to put restrictions on registered representatives being named a beneficiary, executor, trustee or any other position of trust for a customer.
Finra President and CEO Robert Cook called Finra’s proposal “a careful step in this area where we have seen concerns but are trying to build on the firm practices we’ve seen to date.
“We feel we can raise the bar,” Cook said yesterday at the self-regulatory organization's Senior Investor Protection Conference in Washington, D.C.
Some firms employ an outright ban on the practice of reps becoming beneficiaries or taking on other positions of trust with customers, but others have no procedures designed to protect investors who are greying in droves, Cook said. By 2034, Americans age 65 and older are projected to outnumber U.S. children under age 18. That has authorities and regulators across the country concerned about increasing financial exploitation of the seniors and elderly.
The Finra proposal would require that all reps decline being named a beneficiary of a customer’s estate or receiving a bequest from a customer’s estate unless the rep provides written notice to their firm and receives written permission from the firm. The same written notice and approval would be required by reps who are named an executor or trustee or who are given power of attorney or similar positions on behalf of a customer, according to the proposed rule.
“This rule would require that advisors give notice to the firm, which would be expected to exercise a reasonable approach to decide if it is appropriate for a rep to be a beneficiary or a trustee,” Cook said. “We are trying to not be too prescriptive, but to set up notice and procedures where reasonable oversight would need to happen."
The proposal also gives firms some guidance on when they should reject such requests.
"Approval should be given only when the member firm has made a reasonable determination that the registered person assuming such status does not present a risk of financial exploitation that the proposed rule is designed to address,” the rule states.
Finra said it wants firms to consider the following factors when determining if a rep should be a named a customer beneficiary or person of trust:
• Any potential conflicts of interest.
• The length and type of relationship between the customer and rep.
• The customer’s age.
• The size of any bequest relative to the size of a customer’s estate.
• Whether the customer has a mental or physical impairment that renders the individual unable to protect his or her own interests.
• Any indication of improper activity or conduct with respect to the customer or the customer’s account (e.g., excessive trading).
• Any indication of customer vulnerability or undue influence of the registered person over the customer.
Under the proposal, broker-dealers would be required to keep all their written determinations for a minimum of three years. If they decide a rep can become a beneficiary or person of trust, the firm will be required to supervise the rep’s compliance with the conditions, the regulator said.