Financial Advisors Role in Preventing Elder Financial Exploitation
FINRA Rule 2165 was created to protect seniors from exploitation. The Financial Industry Regulatory Authority (FINRA) is a self-regulator authorized by the United States Congress to oversee broker-dealer firms and protect investors. Elder abuse includes theft, fraud, misuse of a person’s assets or credit, or use of undue influence to gain control of an older person’s money or property should be on the alert.
Seniors may be especially vulnerable to financial exploitation if they are cognitively impaired or simply confused by complex financial opportunities or products. Advances in technology can make things even more complicated for seniors.
Further, studies have reportedly shown that people tend to make poorer financial decisions as they get older. They also are often lonely and more willing to talk to strangers.
Elder Financial Exploitation Under-reported
In 2011, Investment News reported older Americans were being financially abused by family members, strangers and businesses to the tune of $2.9 billion a year. In 2019, the numbers ranged from $3 billion to $37 billion per year. Most likely those numbers are vastly under reported. According to National Adult Protective Services Association (NAPSA), only 1 in 44 cases of financial abuse ever comes to light.
Other data compiled by the U.S. Consumer Financial Protection Bureau show that between 2013 and 2017, those over age 70 lost an average of $41,800 to elder financial exploitation.
FINRA Rule 2165: Financial Advisors play an Essential Role
As the keeper of your money, the first line of defense against elder financial exploitation could be your financial advisor.
The Senior Safe Act was passed into law in 2018, calling on financial institutions to train their employees on how to detect suspicious activity that might indicate elder abuse. However, some financial advisors still may not feel comfortable identifying if a client is losing mental capacity or being exploited by a family member or friend.
Fortunately, FINRA Rule 2165, implemented in 2018, provides guidelines for its members to respond to situations in which they believe that financial exploitation may be an issue.
FINRA Rules regarding Financial Exploitation of Seniors
While FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) protects against brokers being beneficiaries on clients’ estates (in order to prevent possible conflicts of interest), after the recent upswing in elder financial abuse, FINRA put in place the first uniform, national standards to protect senior investors.
In 2018 the SEC approved the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults), as well as amendments to FINRA Rule 4512 (Customer Account Information),
FINRA Rule 2165
The Financial Exploitation of Specified Adults rule permits a member that reasonably believes that financial exploitation is possible to place a temporary hold on the disbursement of funds or securities from the account of a “specified adult” customer. Specified adults include a natural person age 65 and older or a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
FINRA Rule 4512
The Customer Account Information rule requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account or when updating account information for a non-institutional account. The 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.
FINRA Rule 4512 and FINRA Rule 2165 both aim to protect investors from financial exploitation, but they differ in their scope and requirements.
Rule 4512 is a record-keeping rule that requires broker-dealers to obtain and maintain essential information about each customer’s account, including the customer’s investment objectives, financial situation, and any other information necessary to make suitable recommendations. The rule is designed to ensure that broker-dealers have accurate and up-to-date information about their customers, which is essential for detecting and preventing potential fraud and other forms of financial exploitation.
On the other hand, FINRA Rule 2165 permits broker-dealers to place a temporary hold on disbursements or transactions from the accounts of certain customers when there is a reasonable belief that the customer is being financially exploited. The rule is intended to provide broker-dealers with a tool to prevent or stop potentially fraudulent activity that could cause harm to vulnerable customers.
In essence, Rule 4512 is a preventive measure that requires broker-dealers to obtain and maintain essential information about their customers, while Rule 2165 is a reactive measure that allows broker-dealers to act if they suspect that a customer is being financially exploited.
Both rules are important components of FINRA’s regulatory framework, and broker-dealers must comply with both rules to ensure the protection of investors.
Warning Signs of Elder Financial Exploitation
With in-depth access to a client’s financial activity, financial advisors have the unique opportunity to help protect their elderly customers from people attempting to defraud them. The following are a few ways that advisors and financial institutions may be able to protect their customers.
- Account balances: Financial advisors may notice, based on past activity, if their customer’s accounts are decreasing and why.
- Types of Transactions: Sudden changes such as wiring money out of their account or transferring funds using online banking should be investigated. Advisors should take note of any outgoing wires and large ATM withdrawals.
- Account Access: If a new person becomes involved in the client’s life, in a romantic capacity or otherwise this could be a warning sign, especially if the new individuals are suddenly given access to the customer’s accounts.
Free Consultation with a Securities Attorney
When disputes arise between investors and securities firms or brokers, they may be required to resolve their differences through FINRA arbitration. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision.
The White Law Group helps clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary.
In addition to their knowledge of FINRA rules and procedures, the FINRA attorneys at the White Law Group also have experience in securities law and litigation. They can provide valuable guidance to clients on the strengths and weaknesses of their case, the likelihood of success, and the potential risks and rewards of pursuing arbitration.
If you have an investment related dispute, the securities attorneys at the White Law Group may be able to help you. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases. The firm has offices in Seattle, Washington and Chicago, Illinois and reviews securities cases across the country.
If you or someone you know has been the victim of elder financial fraud, the securities attorneys of The White Law Group may be able to help.To speak with a securities attorney, please call offices at (888)637-5510.
To learn more, please see download our Elder Financial Exploitation Guide below.
elder financial exploitation, Elder financial fraud, financial advisor elder fraud, FINRA rule 2165, FINRA rule 4512, Securities Attorney Last modified: July 3, 2023