As a country, we‘re getting older. Those 85 and up are currently the fastest growing segment of our population. They’re also one of the most easily defrauded.

To combat this growing problem, FINRA has taken aim at two of the biggest issues impacting an aging population: diminished capacity and the financial exploitation of seniors and vulnerable persons.

Financial fraudsters exploit one out of five Americans aged 65 or older, and the damages amount to roughly $2.6 billion annually, SIFMA says. And, just one out of 44 cases of financial abuse of elders ever gets reported to authorities, according to the National Adult Protective Services Association (NAPSA).

Carrie Chelko, Lincoln Financial
Carrie Chelko is the chief counsel for distribution at Lincoln Financial Group.

The regulator’s new and amended Rule 2165 and Rule 4512 require firms to attempt getting a client’s trusted contact upon opening an account or updating information while also allowing firms to place holds on accounts if they suspect financial exploitation. The rules became effective Feb. 5.

But that’s only the beginning. Some 62 million Americans got $955 billion in Social Security benefits last year, according to the Social Security Administration. Our industry has a duty to step into a leading role on the front lines.

We are constantly hearing about sophisticated internet scams, imposter schemes, affinity fraud and even catfishing on online dating sites — all aimed at some of the most vulnerable among us. Many of these scams put a target on important means of income like Social Security or support programs like Medicare. And there are many ways to abuse and exploit these programs.

Sometimes it’s a caregiver obtaining access to Social Security checks and withholding the proceeds. Or it’s an online or email scam posing as Social Security to entice seniors to disclose personal information that can be misused to exploit their benefits. The very programs aimed at providing financial stability in retirement are turned against seniors as easy targets for exploitation.

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The new FINRA rules will provide advisors and broker-dealers more methods of addressing diminished capacity and exploitation issues, allowing for action to be taken when necessary to limit damages. However, the new rules also come with increased responsibilities.

FINRA Rule 2165 and 4512:

  • Require firms to make “reasonable efforts” to obtain the name of a trusted contact person who can be notified when they suspect diminishment or financial exploitation; and
  • Allow firms to place a hold on the disbursement of funds if there is a reasonable suspicion of financial exploitation. While the hold is only temporary (initially lasting 15 days), it allows firms time to investigate the suspicious activities and determine whether funds are being fraudulently removed from a client’s account.

Beyond the FINRA regulations, though, firms and advisors should adopt other best practices to ensure they are aligned with and protecting a client’s best interest. These include:

  • Know your customer. The more you can deepen your engagement with your clients, the more you can help detect when something seems off.
  • Talk to your clients about the issue. Advanced planning initiatives can help them prepare for their financial future.
  • Be aware of the signs and red flags for diminishment and exploitation. AARP and SIFMA have provided guidance describing what to look for in behaviors, appearances, attitudes and actions.
  • Document and report any suspicions. This includes problematic transactions or disbursements that seem unusual or sudden.
  • Understand your firm’s escalation policies. Know whom to contact and how, when suspicions warrant action on your clients’ behalf.

As an advocate for the protection of senior investors, I’m very pleased by FINRA’s new and amended guidelines. But regulation can only do so much. We must do our part to educate around these issues and the appropriate response mechanisms allowing advisors to take action against elder abuse.

Carrie Chelko

Carrie Chelko

Carrie Chelko is senior vice president and chief counsel for Lincoln Financial Group’s distribution organization.