Finra elder-abuse rule could trigger delicate conversations between brokers, clients

Regulation taking effect Feb. 5 requires reasonable effort to find trusted contact, allows brokers to stop fund disbursement

Jan 26, 2018 @ 1:58 pm

By Mark Schoeff Jr.

A new Finra regulation designed to prevent financial exploitation of seniors will spur what could be delicate conversations between brokers and older clients.

The rule, which goes into effect on Feb. 5, requires that brokers make a reasonable effort to identify a trusted person who can be contacted if the broker is concerned that the client is suffering from diminished mental capacity or is the target of a scam.

The request for a trusted contact must be made at account openings for new clients and during account updates with existing clients.

The regulation also provides brokers with liability protection if they place a hold on disbursements from an account because they think their clients could be harmed.

If the client declines to provide a trusted contact, the broker does not have to keep pushing, according to a set of frequently asked questions posted on the website of the Financial Industry Regulatory Authority Inc.

But that initial conversation could be tricky.

"We have to be real careful with that, especially with seniors, because it's a touchy subject," said Amy Daniels, an Edward Jones adviser in Searcy, Ark. "It's a simple question: Who do they trust? It may be the first time a financial adviser has asked that question."

Ms. Daniels has been gathering trusted contact information for two years. She's found that the discussion of what to do if the client declines is a gateway to a family conversation.

"That's when I really get into the what ifs, in the family meeting," she said.

RBC Wealth Management brokers also have been obtaining trusted contacts for a number of years. Angie O'Leary, RBC head of wealth planning, recommends that discussion be placed in a larger context.

Conduct "a wealth planning conversation with the client rather than just focusing on the regulatory requirement," Ms. O'Leary said. "Then they're having a richer conversation."

Wells Fargo Advisors has had a program in place since 2014 to protect older clients. The trusted contacts are a key part of the system, according to Ron Long, the firm's director of regulatory affairs and elder client initiatives.

"We use the trusted contact information as part of the escalation process to protect the client," Mr. Long said. "In the majority of cases, the trusted contact gets involved and helps resolve the situation. We are well above 50% where a trusted contact or a client or a combination of both are appreciative that we decided to step in."

The Finra rule gives brokers a safe harbor if they stop disbursements from a client's account. They can place an initial hold for 15 days and then extend it for another 10 days.

The Finra rule does not require that brokers report suspected elder abuse to regulators or other government agencies, but Joseph R.V. Romano, president of Romano Wealth Management in Evanston, Ill., said that's what they should do anyway during a disbursement hold.

"The 15 days is giving you the opportunity to escalate this to the proper authorities, like the Adult Protective Services in your state," said Mr. Romano, a member of the Finra board.

Mr. Romano, who has participated in industry conferences on senior exploitation, spoke about the Finra rule from his perspective as a firm owner, not on behalf of Finra or the board.

APS can investigate the suspected abuse.

"You're escalating this to an agency that is prepared to make that evaluation," Mr. Romano said.

At larger firms, such as Edward Jones and Wells Fargo Advisors, escalation means getting compliance or field office supervisors involved in the decision on whether to hold a disbursement.

As the Finra rule is going into effect, several states have implemented or are considering a model elder-abuse rule drafted by the North American Securities Administrators Association. The NASAA regulation is similar to Finra's but requires that financial advisers report suspected abuse to authorities.

Mr. Long doesn't foresee conflicts between the rules.

"I think brokers can follow the Finra model and enhance it with whatever state rule may exist," he said.

The bigger challenge for brokers may be dealing with older clients who resent the idea that they have to prepare for the stage in life where they begin to decline.

Brokers' "interest in doing the right thing for their client and protecting their client will outweigh the concern about the client pushing back," Mr. Romano said.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four 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

Featured video

FinTech Forum

Advicent's Stich: What the advice revolution means for financial advisers

We are in the midst of an advice revolution, according to Advicent's Anthony Stich. What does this mean for traditional advisers and how can they remain a step ahead of the competition?

Latest news & opinion

The midterm elections: What's at stake for financial advisers

A shift in control of the House could change the course of important issues, including the SEC advice rule, tax reform and retirement policies.

What to tell your clients after they've won the lottery

The current combined Mega Millions and Powerball jackpots are more than $850 million. What should you tell your clients if they have a winning ticket?

2019 Medicare premiums announced

Slight increase in Part B premium to $135.50 per month is in line with expectations.

7 ways states got tough with unregistered individuals and firms in 2017

Rise in digital currency frauds helped trigger a crackdown by state regulators.

Market slide awakens nervous investors, puts advisers back to work

Some reach out to clients who need hand-holding, while others see decline as opportunity to drum up new business.

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