In a positive development for seniors and individuals with disabilities, the U.S. Securities and Exchange Commission has just approved the adoption of the Financial Industry Regulatory Authority Rule 2165 (Financial Exploitation of Specified Adults). Rule 2165 allows broker/dealers to place a temporary hold on disbursements of funds or securities from the accounts of specified customers if the b/d has a reasonable belief of financial exploitation of those customers. The SEC also approved amendments to FINRA Rule 4512 (Customer Account Information), to require members to make reasonable efforts to obtain the name of and contact information for a “trusted contact person” for a customer’s account. Both Rule 2165 and the amendments to Rule 4512 became effective on Feb. 5, 2018. It’s important for caregivers of seniors and individuals with disabilities to understand the new rules to ensure maximum protection for their loved ones.
The change in rules comes in the wake of the large number of U.S. investors approaching retirement or already in retirement. Each year, the Administration on Aging compiles the latest U.S. Census data into a Profile of Older Americans. Over the past 10 years, the population of individuals aged 65 and over increased from 36.6 million in 2005 to 47.8 million in 2015 (a 30 percent increase) and is projected to more than double to 98 million in 2060. FINRA reports that investments of Americans over the age of 65 accounts for more than 75 percent of all financial assets in the United States, according to SEC data.
As an individual ages, his risk for financial exploitation increases dramatically. The National Adult Protective Services Association defines “financial exploitation” as occurring when a person misuses or takes the assets of a senior or other vulnerable adult for his own personal benefit. These assets are generally taken through deception, false presence, coercion, harassment, duress and even threats. Despite its prevalence, financial exploitation tends to be underreported. High profile cases such as the Brooke Astor Case, as well as advocacy by senior groups, have made senior financial exploitation a top priority for the SEC and FINRA.
In response to these incidents, in 2013, FINRA and the SEC initiated an assessment of different investment firms’ policies and practices regarding their senior investor clients. The examinations focused on a broad range of topics, including the types of securities sold to senior investors, training of firm representatives with regard to senior-specific issues and how firms address issues relating to aging, including but not limited to diminished capacity and elder financial abuse or exploitation. In response to this assessment, in 2015, FINRA launched a toll-free helpline for seniors to provide investors with a supportive place to obtain assistance with concerns they have with their brokerage accounts and investments. FINRA reports that since the launch of the helpline, it fielded more than 8,600 calls and recovered over $4.3 million in voluntary reimbursements from firms to customers.
The New Rules
The 2013 assessment and success of the helpline exemplified the need for established protections for elderly investors. Amended FINRA Rule 4512 now requires that on the opening of an account and routine updating of an account, a b/d must make a reasonable effort to collect the name of a “Trusted Contact Person” from the account holder. The amended rule also requires that the b/d provide written disclosure that it may disclose information to the Trusted Contact Person about the customer’s account to both address possible financial exploitation and confirm specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee or power of attorney. While FINRA doesn’t specify in the amended rule what contact information must be gathered, such information would likely include a phone number, email address and mailing address. The amended rule aims to encourage firms to review customer accounts, and when warranted, enhance policies and procedures to reflect the special issues common to senior investors.
Similarly, FINRA Rule 2165 provides protections for a b/d in certain circumstances if the b/d put a temporary hold on disbursements where the b/d suspects financial exploitation of a “Specified Adult.” The Rule defines a “Specified Adult” as someone who is over the age of 65 or 18 years or older and whom the b/d reasonably believes has a mental or physical impairment that renders the individual unable to protect his own interests. In addition to seniors, the Rule also seeks to protect those with other physical or mental impairments. The Rule allows b/ds to place a temporary hold on a disbursement of funds or securities from the account of a Specified Adult if the b/d reasonably believes that financial exploitation of the Specified Adult has occurred, is occurring, has been attempted or will be attempted. Once a temporary hold is placed on an account, the b/d must provide notification of the hold to all parties authorized to transact business on the account, as well as the Trusted Contact Person, within two business days. The b/d must immediately initiate an internal review of the facts and circumstances, and can place a hold on a disbursement of funds or securities for up to 25 business days. The temporary hold doesn’t apply to transactions in securities.
Speak to Your Clients
In light of the new rules, speak to your clients about making a loved one the Trusted Contact Person. This way, if something out of the ordinary occurs on the account, your client will be aware and can take action to protect assets. Furthermore, in addition to working with your client’s loved one’s b/d, you can also encourage your client to look at his entire estate plan to ensure that he’s using all available protections. Some of these protections include a will, a healthcare proxy, a HIPAA release form and durable power of attorney, allowing an agent to assist a client’s loved one in paying bills and managing finances if they’re no longer able to do so.
