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New FINRA Rules to Prevent Exploitation of SeniorsNew FINRA Rules to Prevent Exploitation of Seniors

Help clients protect themselves and their loved ones.

5 Min Read
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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.

About the Authors

Bernard A. Krooks

Founding Partner, Littman Krooks LLP

Bernard A. Krooks is a founding partner of the law firm Littman Krooks LLP and Chair of its Elder Law and Special Needs Department. Mr. Krooks is a nationally-recognized expert in all aspectsof elder law and special needs planning. He is the President of the Board of Directors of the Arc of Westchester, the largest agency in Westchester County serving people with intellectual and developmental disabilities and their families.

 

Mr. Krooks is past President of the Special Needs Alliance, a national, invitation-only, not-forprofitorganization dedicated to assisting families with special needs planning. He is past President of the National Academy of Elder Law Attorneys (NAELA), a Fellow of NAELA, pastChair of the NAELA Tax Section and past Editor-in-Chief of the NAELA News . In addition, he is certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation and is an Accredited Estate Planner (AEP). He is a founding member and past President of the New York Chapter of NAELA. In 2008, he received the Chapter’s Outstanding Achievement Award for his lifelong work on behalf of seniors and those with disabilities. In 2007, his firm received the NYSARC employer of the year award for employing people with disabilities. In 2011, his firm received the Family Friendly Employment Policy Award from the Westchester Women’s Bar Association. 

 

Mr. Krooks is past Chair of the Elder Law Section of the New York State Bar Association (NYSBA) and past Editor-in-Chief of the Elder Law Attorney , the newsletter of the NYSBA Elder Law Section. He also is a member of the Trusts and Estates Law Section and Tax Section of the NYSBA . Mr. Krooks co-authors (1) a chapter in the NYSBA  publication Guardianship Practice in New York State  entitled “Creative Advocacy in Guardianship Settings: Medicaid and Estate Planning, Including Transfer of Assets, Supplemental Needs Trusts & Protection of Disabled Family Members.”; and (2) the NYSBA  publication Elder Law, Special Needs Planning and Will Drafting . He is chair of the elder law committee of the editorial advisory board of Trusts & Estates Magazine, and serves on the editorial boards of Exceptional Parent Magazine, and Leimberg Information Services. 

 

Mr. Krooks, a sought-after expert on elder law, special needs planning and estate planning matters, has been quoted in The Wall Street Journal, The New York Times, Newsweek, Forbes, Investment News, Financial Times, Money Magazine, Smart Money, Worth Magazine, Kiplinger’s, Bloomberg, Consumer Reports, Wealth Manager, CBS Marketwatch.com, Lawyer’s Weekly USA, Reader’s Digest, Bottom Line, The Journal of Financial Planning, The New York Law Journal, The Daily News, New York Post and Newsday , among others. He has testified before the United States House of Representatives and the New York City Council on long-term care issues. He also has appeared on Good Morning America Now, National Public Radio, Sirius XM Radio, CNN, PBS, NBC, and CBS evening news, as well as numerous other cable television and radio shows.

 

Mr. Krooks is past President of the Estate Planning Council of Westchester, a member or the Advisory Board of the National Association of Estate Planning Councils Foundation, and the Hudson Valley Estate Planning Council. He also is Co-Chair of the Long Term Care, Medicaid, and Special Needs Trusts Committee of the Real Property, Probate & Trust Law Section and a member of the Tax Section of the American Bar Association; a member of the Bar of the Supreme Court of the United States, and a member of the American Institute of CPAs. Mr. Krooks also is a Fellow of the American College of Trust and Estate Counsel (ACTEC) and serves on its Elder Law Committee. He is an Adjunct Professor at NYU Center for Finance, Law & Taxation and is a member of the NYU Institute on Federal Taxation Advisory Board. Mr. Krooks has presented on a variety of elder law and special needs topics at the Heckerling Institute on Estate Planning, the premier estate planning conference in the country.

 

Mr. Krooks has served on the Board of Directors of the Alzheimer’s Association Westchester/Putnam Chapter and the Bioethics Advisory Committee of New York Hospital. He is a member of the Blythedale Children’s Hospital Planned Giving Professional Advisory Board, a member of the legal advisory committee of the Evelyn Frank Legal Resources Program of Selfhelp Community Services, Inc., and a board member of the Caregiver’s Insights Foundation. He is listed in the Best Lawyers in America, New York Super Lawyers, Who’s Who  in America, the New York Area’s Best Lawyers, New York Magazine and The New York Times , and the Top 25 Westchester, New York Super Lawyers.


 

Stacy M. Sadove

Attorney, Littman Krooks LLP

Stacy M. Sadove, Esq., is an attorney with Littman Krooks LLP. She focuses her practice on special needs planning, special education law, estate planning and administration, trust administration, guardianships, elder law and public benefits advocacy. She joined the firm in June 2012.

Ms. Sadove works with families with special needs using a holistic approach to determine the necessary benefits and estate planning tools required to help them succeed.  Ms. Sadove effectively advocates for students both in New York City and suburban districts, helping children to obtain an appropriate education and necessary related services.  She has helped parents prevail in impartial hearings and state review proceedings and in federal court.   She also assists families with managing and obtaining government benefits through proper special needs planning, including counseling with regard to OPWDD, Medicaid and maintaining benefits if in receipt of a settlement.

As a mother, Ms. Sadove understands the important role of preparing for a child’s future.  “It’s never too early to start.” In reflecting on her practice she says, “I receive great satisfaction from helping families achieve their goals, protect their assets, and plan for the future.”

Ms. Sadove received her J.D. from Fordham University School of Law and her B.A. from Hamilton College.  Upon completion of her law degree, Stacy received a Public Service Fellowship where she served in the General Counsel’s Office of Safe Horizon, a victim’s assistance nonprofit organization focused on helping battered women. Prior to joining Littman Krooks, Ms. Sadove worked as a Pro Bono attorney for Sanctuary for Families’ Center for Battered Women’s Legal Services, where her practice focused on contested and uncontested divorce proceedings, orders of protection, and child custody and visitation cases.

Ms. Sadove is a member of NYSBA.  She is admitted to practice in New York and New Jersey. She is admitted to the U.S. District Courts for the Southern and Eastern Districts of New York. She is a member of the Hamilton College Gold Engagement Committee as well as the Chair of the Elihu Root Society, Hamilton’s law affinity group. Ms. Sadove also serves as a board member to Wings, the young leadership group for the Wild Center, a museum in the Adirondacks whose mission is conservation and education on conservation of the Adirondacks. She has an enduring passion for the Adirondacks and protecting the park for generations to come. Ms. Sadove is married and lives with her son and husband in Westchester. She is an avid scuba diver.