New Rules Aimed to Protect Senior Investors

Erin A. Smith, Esq. 

The financial exploitation of elderly investors is becoming a major problem in our country. In order to address this growing trend, the Securities and Exchange Commission (the “SEC”) adopted new rules, effective February 2018, to allow members of banks to act if they have a reasonable belief that a client is being financially exploited. The rules were proposed by the Financial Industry Regulatory Authority (“FINRA”) due to this growing need. Currently, there is little a financial institution can do to protect their investors from this sort of abuse. The new guidelines allow the following:

    FINRA Rule 2165 allows a member who has a reasonable belief that a client is being financially exploited to put a hold on that customer’s disbursements of their accounts and/or securities. This is not a requirement, but it does allow the member to have discretion and to put a temporary hold on funds when there is a concern.

    FINRA Rule 4512 requires a member to make reasonable efforts to obtain the name of and contact information for a trusted person for a customer’s account. The member must ask the client for a trusted contact when they open an account. The trusted person can provide input as to the customer’s health situation, confirm specifics of customer’s contact information, report concerns regarding financial exploitation, and identify a legal guardian, trustee, executor, agent for the client.

It may not be the perfect solution, but certainly a step in the right direction. It is helpful to have a trusted person to contact in the event that there is a concern. However, they have limited power to protect the assets and can really only provide information.

The best way to protect yourself and your loved ones from financial exploitation is to plan ahead. A comprehensive durable power of attorney and a revocable living trust can provide more protection for you and/or your aging family members from becoming victims of this type of abuse.