FINRA's board has advanced a proposal to help curb financial exploitation of elderly investors, giving a thumbs-up to a new rule that would allow brokers to put a hold on a transaction request if they suspect the client is the victim of abuse.
FINRA explains that the proposed rule would not create any obligation for a broker to delay the disbursement of funds or securities, but rather would offer safe-harbor protections from legal liability if a broker chose to do so under "a reasonable belief of financial exploitation."
In a statement, FINRA Chairman and CEO Richard Ketchum calls the proposal an "important step forward that would benefit both investors and firms."
"Each day for the next 15 years, an average of 10,000 Americans will turn 65," Ketchum says. "Seniors are at risk, and FINRA is committed to helping protect seniors and other vulnerable adults from financial exploitation."
FINRA is proposing its rule as a safeguard that could protect elderly clients from draining their accounts when they are the victims of exploitation, a widely varying catch-all term that encompasses different patterns of abuse that can be carried out by any number of perpetrators.
The circumstances of elder abuse are distinct to the individual's case, and there is no single profile of the people who responsible for the exploitation, though
The scope of the problem is similarly
PAUSE LAW
Under FINRA's proposed rule, brokers would be able to place temporary holds on the accounts of clients who are 65 or older, as well as those 18 or older who have mental or physical disabilities that could put them at risk of exploitation.
In offering the elder-protection rule, FINRA follows similar efforts that have been percolating at the state level. Washington state enacted a so-called
Those efforts have caught the attention of NASAA, the association of state securities regulators, which has established a working group to study issues of elder abuse, and has been
Rick Fleming, the SEC's investor advocate, has
Like the state efforts, FINRA's proposal would impose certain notification provisions on brokers who invoke the safe harbor to delay a suspicious transaction. If the rule goes forward, FINRA would amend its customer-account information protocol to require brokers "to make reasonable efforts" to obtain information for a trusted contact person who could be notified in the event that they suspect abuse is occurring.
FINRA plans to release a regulatory notice seeking comment from the public on the proposed rule "within the next several weeks."
'CAN GET TRICKY'
Some industry insiders greeted the announcement of the proposal, though they note that it is hardly a universal panacea for elder financial abuse, and caution that the effectiveness of the rule will hinge on how it is drafted and put into action.
"Yes, it is good that regulators are discussing this important issue. The exercising of this power by brokers can get tricky though," says Tom Hebrank, president of
For instance, what if a broker opts not to place a hold on a client's request to move money, and the funds are subsequently lost to a scam? Hebrank envisions that having the option to delay a transaction, but not exercising it, could potentially invite new legal liabilities.
FINRA notes in a news release that the proposed rule would not create any obligation for a broker to delay a transaction, but does not address the issue of legal liability in the event that a broker does not intervene to stop a transaction when abuse is occurring.
Asked about that and other issues, such as how long the temporary transaction hold might last, a spokeswoman for FINRA said that those details will not be available until the regulatory notice seeking comment is issued. "When the proposal is made public, these will be included," the spokeswoman said.
Carolyn McClanahan, director of financial planning at
"I've been following the conversation on broker's duty to clients for a while. This rule is welcome, and my concerns are in how it will be implemented," McClanahan says.
McClanahan is interested in a more far-reaching transformation in the brokerage industry that would include a uniform fiduciary duty of care, bringing the broker rules in line with the regulatory framework of the RIA sector, and then layering in the elder-investor proposal that FINRA is considering.
"What needs to come first is that the brokers must accept fiduciary duties -- instead of suitability -- before these rules are enacted," she says. "Once a broker is deemed a fiduciary, and they are appropriately trained in identifying potential abuse, then these rules will have some validity."
Read more:
