In late October, the Financial Industry Regulatory Authority (Finra) filed proposed rules with the Securities and Exchange Commission that, if approved by the SEC, will help protect elderly investors and other vulnerable adults from financial exploitation. The rules focus on adults age 65 and up or an adult of any age who a financial firm believes has a mental or physical impairment that makes the individual incapable of protecting his or her own interests.
Under the proposed rules, firms would be required to make “reasonable efforts” to obtain the name and contact information for a trusted contact person for the elderly or vulnerable customer’s account. According to the regulatory notice, asking a customer to provide the name and contact information for this trusted contact ordinarily would constitute reasonable efforts and satisfy the rule. A trusted contact must be at least 18 years old and not be authorized to transact business on behalf of the account.
Finra believes firms should consider asking customers to review and update the name and contact information for their trusted contact periodically or when there is reason to believe there has been a change in the customer’s situation.
The proposed rules would also allow firms to place a temporary hold on the disbursement of funds or securities in a customer’s account when there is reasonable belief of financial exploitation. For example, says Finra, a family member might notice big sums leaving the account of an elderly investor with diminished mental capacity. The trusted contact would be notified of the hold. The rules also provide a safe harbor to firms that exercise discretion in placing these holds.
The rapidly aging investor population is one factor that motivated Finra to introduce the proposed rules. Another motivator was the volume and nature of the calls to Finra’s help line for seniors. Finra has received more than 7,000 calls since launching the hotline in April 2015.
Calls to the hotline have resulted in more than $2.6 million in voluntary reimbursements from firms to callers. Among the top 10 reasons for the calls are misunderstandings about a product or account activity, misappropriation or forgeries and misrepresentation. “Callers have ranged in age from 20 to 101!” says Finra spokesperson Michelle Ong, and many loved ones call on behalf of seniors.