My father-in-law, Mike, has been very successful in life. He earned an engineering degree from Georgia Tech, did a post-college stint with the Army Corp of Engineers, worked with one of the largest publishing companies in the world, and ultimately co-founded his own business he ran for four decades. In fact, he will still remind me over an occasional cocktail that he and his partner at one time had the largest independent magazine publisher’s rep business in the country.

Once an astute investor knowledgeable about the economy and financial markets, Mike long ago delegated his financial affairs to professionals. I don’t know his net worth and have no intention of asking, but I suspect he built up a nice nest egg before he retired.

Based on statistics related to adults 65 years or older, did you know that Mike has a 1 in 20 chance of being a victim of financial exploitation? [Financial Exploitation of Older Adults: A Population-Based Prevalence Study, Journal of General Internal Medicine (2015)] If he dies before his wife, Betty, she is more than twice as likely to be financially exploited, simply because she’s 65 years or older and a female. [The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America’s Elders (June 2011)]

What exactly is “financial exploitation”? There are many definitions, but according to the National Adult Protective Services Association, financial exploitation occurs when a person misuses or takes the assets of a senior or other vulnerable adult for his or her own personal benefit. These assets are generally taken through deception, false pretence, coercion, harassment, duress and even threats. The effects of financial exploitation of an elderly person or other vulnerable adult can be devastating, resulting in feelings of shame, guilt, anger, loss of trust and depression. It can also lead to severe financial harm, if not destitution, as, like Mike, the victim is usually retired and cannot replace the assets that were taken from them. It is estimated by various sources that financial abuse costs elders billions of dollars annually.

Financial abuse has become a serious issue in this country. In fact, a widely-heralded report released in 2011 and still relevant today, The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America’s Elders, coined the phrase “The Crime of the 21st Century” to describe the financial exploitation of the elderly in the United States. According to the study…“Elder financial abuse continues to decimate incomes both great and small, engenders health care inequities, fractures families, reduces available health care options and increases rates of mental health issues among elders. Despite growing public awareness from a number of high-profile financial abuse victims, it remains underreported, under-recognized, and under-prosecuted.”

While financial exploitation can occur many different ways and be perpetrated by many different types of people, Finra, the self-regulatory organization for the U.S. securities industry, is specifically interested in protecting money and securities its member firms hold in accounts for seniors and other vulnerable adults from this type of abuse.

On February 5^th of this year, the Securities and Exchange Commission approved Finra’s request to amend Finra Rule 4512 (Customer Account Information) and release new Finra Rule 2165 (Financial Exploitation of Specified Adults) to provide member firms with a way to quickly respond to situations in which they reasonably believe that financial exploitation has occurred or will be attempted. The new and amended rules go into effect on February 5. 2018.

Finra believes its member firms and registered representatives will be able to better protect its customers from financial exploitation if they are able to: (1) notify a “trusted contact person” of the customer when there is concern that the customer may be the victim of financial exploitation and (2) place a temporary hold on a disbursement of funds or securities from the customer’s account under these circumstances. FINRA feels these measures, which are not currently permitted activities under FINRA rules, would assist members in thwarting the exploitation of these high-risk individuals before potentially devastating losses occur.

Since Finra is specifically interested in protecting money and securities in the accounts of their elderly customers, Finra more-narrowly defines financial exploitation to mean:

• the wrongful or unauthorized taking, withholding, appropriation or use of a “specified adult’s” funds or securities; or

• any act or omission taken by a person through the use of a power of attorney, guardianship, or any other authority to obtain, control, and/or convert money, assets or property of the “specified adult” through deception, intimidation or undue influence.

“Specified adult” under the Finra definition covers investors who are particularly susceptible to financial exploitation, namely: a natural person age 65 and older or a natural person age 18 and older believed to have a mental or physical impairment that renders that person unable to protect his or her own interests.

Following are the key components to the amendments to Rule 4512 and new Rule 2165, excerpted from Finra’s Regulatory Notice 17-11:

Amendments to Finra Rule 4512

The purpose of the amendments to Rule 4512 is to require members to make reasonable efforts to obtain the name and contact information for a “trusted contact person”. Efforts to obtain this information must be made upon the opening of a new (non-institutional) customer account and when updating account information for customer accounts opened prior to February 5, 2018, when the amendments go into effect.

What is a “trusted contact person”? A trusted contact person is intended to be a resource for the member in administering the customer’s account, protecting assets and responding to possible financial exploitation. Member firms and their customers may benefit from the trusted contact information in many different settings. Examples provided by Finra include:

• If a member has been unable to contact a customer after multiple attempts.

• If a customer is known to be ill or infirm.

• If the member suspects that the customer may be suffering from Alzheimer’s disease, dementia or other forms of diminished capacity.

New Finra Rule 2165

The primary purpose of Rule 2165 is to permit a Finra member firm to place a hold on the disbursement of funds or securities. If a temporary hold is elected, Rule 2165 requires the firm to immediately initiate an internal review of the facts and circumstances that caused the firm to believe that financial exploitation has occurred and is (or will be) attempted.

It is important to note that Rule 2165 does not apply to transactions in securities. For example, the rule would not apply to a customer’s order to sell his or her shares of a stock. However, if a customer who is a specified adult requests that the proceeds of a sale be disbursed out of the account, then the rule would apply to the disbursement of the proceeds.

The National Center on Elder Abuse forecasts the number of Americans aged 65 and older will more than double to 71 million, roughly 20 percent of the U.S. population, by the year 2030. Consequently, the importance of protecting this growing demographic is as important as ever, and it is encouraging to see that Finra is strengthening regulations to curb this activity.

Greg Brumbeloe is vice president at Kaplan Financial Education and has more than 34 years of experience in financial services and financial services training.