Finra proposes rule to prevent elder financial abuse

Measure requires brokers to establish trusted contacts on accounts and allows them to stop distributions in questionable circumstances

Oct 20, 2016 @ 1:35 pm

By Mark Schoeff Jr.

Finra has filed a proposed rule with the Securities and Exchange Commission that would allow brokers to report suspected financial exploitation of seniors and other vulnerable investors.

The measure, sent to the SEC on Wednesday and announced today, requires brokers to make “reasonable efforts” to identify a “trusted contact” for investment accounts. It also permits them to prevent the disbursement of funds from the account and notify the contact person if the broker suspects the client is a victim of financial abuse.

Brokers could freeze accounts of clients who are 65 or older or older than 18 and have a mental or physical impairment that “renders the individual unable to protect his or her own interests,” the rule states.

The Finra board of governors authorized filing the proposal to the SEC a year ago. Since then, Finra received 40 comments on the proposal. The SEC must approve the rule before it can go into effect. The agency could subject it to another comment period and modify it.

“Moving forward with this [rule] will be a good thing for the industry and for investors,” Susan Axelrod, Finra executive vice president for regulatory affairs, told reporters on Thursday on the sidelines of a National Society of Compliance Professionals conference in Washington.

The rule was inspired in part, Finra said, by the organization's Securities Helpline for Seniors. The initiative, launched in April 2015, has garnered 6,700 calls, elevating awareness of the risks seniors face.

The Finra rule is advancing while several states have approved a model rule developed by the North American Securities Administrators Association.

The NASAA measure requires that financial advisers notify Adult Protective Services and state regulators if they detect senior abuse. It also provides protections for reporting and for withholding funds.

Finra's rule is less demanding than NASAA's, indicating that tension over whether to require advisers to report abuse will remain.

Although compliance experts praised the goal of the Finra rule, they worry about how it would work in practice.

Jason Gottlieb, partner at Morrison Cohen, said brokers are not medical and psychology experts, yet they would have to determine whether a client is being exploited.

“I'm concerned about potential liability and exposure to lawsuits or Finra arbitration if the financial institutions don't make the right call,” Mr. Gottlieb said. “The safe harbors may not be sufficient. It puts firms in a difficult position.”

Todd Cipperman, principal of Cipperman Compliance Services, called the rule “very paternalistic.”

“It comes from a good place, but putting it on the broker to police serious competency questions may be asking too much of them,” Mr. Cipperman said.

The rule could also place brokers in the middle of family squabbles, said Laura Anthony, founding partner of Legal and Compliance. For instance, what if the client wants to make a loan to one family member but the trusted contact is another family member who opposes it?

“It has the potential to create a lot of conflict they have not thought through,” she said.

Ms. Anthony also is leery of the responsibility being placed on brokers.

“Is this another fiduciary obligation?” she said.

Ultimately, Mr. Cipperman foresees SEC approval of the rule.

“In my experience, once a rule goes to the SEC, it's because there have been discussions internally,” he said.

0
Comments

What do you think?

View comments

Upcoming event

Nov 19

Conference

New York Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print