FINRA Proposes Rule to Prevent Swindling of Elderly Investors

The Financial Industry Regulatory Authority (FINRA) filed a proposed rule with the SEC last month that aims to protect elderly investors from financial exploitation.

The rule would allow companies (brokers; banks; registered investment advisors) to put a hold on a transaction if they suspect financial exploitation; the company would then run the transaction by the senior’s “trusted contact”, which would have already been provided to them.

More details from the Wall Street Journal:

The aim is to protect older investors from scams and financial abuse by strangers, family members and financial professionals—a complex task that can require the intervention of financial advisers and bank officials that deal with older adult customers while protecting their privacy and dignity.

Proposed rules filed by the Financial Industry Regulatory Authority with the Securities and Exchange Commission have two goals: One is to require financial firms to make “reasonable efforts” to obtain the name and contact information for a trusted contact person for an elderly customer’s account. The other is to permit companies to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation. Such a step would give the companies time to notify the trusted contact, usually a family member, before the transaction is executed.

Finra’s current rules don’t explicitly permit firms to contact a person who isn’t on the account or halt a disbursement, even when abuse of vulnerable adults is suspected.

The rule has been praised by many sides for attempting to curb the epidemic of financial exploitation schemes targeting seniors citizens.

But there are a few criticisms of the rule. Attorney and registered nurse Carolyn Rosenblatt muses that many financial advisors, brokers and other finance professionals don’t have adequate training to identify financial abuse. If they are required to report abuse, Rosenblatt writes, they should also get basic training first:

The regulators have underestimated how inadequate the average, non-expert, non-medical person may feel in being required to report elder abuse of a client. Learning what to look for and how to spot abuse is not so difficult, but everyone who may be required to report it should be required to get basic instruction first . They should not just throw a rule at you without teaching you how to work with it.

There’s also the issue of time. How long does it take to suss out a company’s suspicion of financial abuse? It can sometimes take longer than you’d like, says Rosenblatt, and that could mean holding up a transaction for months. She offers a case study here.

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