Elder abuse prevention by advisers depends on their firms' response to new rule

SEC approves Finra regulation to curb financial exploitation, but requirements are slim

Feb 15, 2017 @ 12:00 pm

By Mark Schoeff Jr.

Regulators are putting the ball in the court of financial firms when it comes to stopping the finanacial abuse of senior citizens.

Earlier this month, the Securities and Exchange Commission approved a Finra rule designed to protect seniors and other vulnerable adults. The measure requires firms to make a reasonable attempt to collect information for a trusted third-party contact for investors and allows brokers to halt disbursements from accounts of clients they think are being taken advantage of.

"These measures will assist members in thwarting financial exploitation of seniors and other vulnerable adults before potentially ruinous losses occur," the Feb. 3 SEC order states.

The rule will take effect in February 2018.

Now it's up to firms to follow through.

"The rule's impact will depend on how forward firms are in utilizing this additional tool, but I do think we will see many firms take the necessary steps to do so, especially given the emphasis that the SEC, Finra and the states have placed on elder financial exploitation," said Nick Losurdo, associate at Morgan Lewis & Bockius.

But the rule promulgated by the Financial Industry Regulatory Authority Inc. lacks teeth, according to Ben Edwards, professor of law at Barry University.

"It doesn't actually require firms to do anything," he said. "There's no disclosure to the public to identify the firms that actually commit themselves to protect seniors if they suspect exploitation."

State rules

Nicole Iannarone, assistant clinical professor at Georgia State University, said the Finra rule allows brokers to put a hold on accounts of potential abuse victims but doesn't include penalities for those who fail to take that action.

"We think it's great they're taking this step. We'd love them to go further," said Ms. Iannarone, director of the Georgia State Investor Advocacy Clinic.

As the SEC approves the Finra rule, several states will consider this year approving their own rules that would require financial advisers to report suspected senior financial abuse to authorities. Those regulations are likely to be based in part on a model rule developed by the North American Securities Administrators Association.

"We'll likely see additional states adopt the NASAA model rule, or a variation thereof, as we go further into the year," Mr. Losurdo said.


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