In a world where many people do everything online, including shop, bank and even date, it's no surprise that the risk of financial fraud is at an all-time high. The issue is even more acute for vulnerable populations.
A recent FBI report underscored the severity of the problem: Seniors lose more than $3 billion annually due to financial scams and other forms of elder abuse (i.e., theft or misuse of someone's credit, debit or investment accounts). Unfortunately, as baby boomers continue to age, this already staggering figure is sure to rise.
While some perpetrators are strangers to their victims, many of the culprits are family members or other trusted caregivers. It's perhaps the most troubling aspect of all concerning this depressing phenomenon.
Preventing this type of crime — and educating investors, lawmakers and the public about it — has been a core part of the Financial Services Institute's advocacy mission for years. The effort is part of our broader initiative of boosting financial literacy, consistent with our belief that investor education and protection are closely correlated.
The rules of the Financial Industry Regulatory Authority Inc. have long provided safeguards for elderly investors and other vulnerable groups. Still, we have believed for years that Finra's rules could be strengthened to help front-line financial professionals protect investors and shield them from abuse.
For instance, while advisers are frequently the first to flag when something is amiss with an elderly client, which can result in a hold being placed on the disbursement of investor funds, no Finra rule specifically addressed how to stop a securities transaction under the same circumstances. That's important because trading a security — especially when markets are as volatile as they have been for much of 2022 — can roil an investment portfolio and produce irreversible, negative consequences for clients' financial well-being.
Finra released Rule 2165, which amended its rules to reflect these realities. We expressed our support for the rule in a recent comment letter, and we were pleased to see it go into effect earlier this month. It will enable firms to:
• Place a hold on a securities transaction if an adviser suspects that financial exploitation has occurred.
• Extend a temporary hold on a disbursement or transaction for an additional 30 days (beyond the previous maximum of 25 days) if a firm reports the matter to a state regulator or agency or a court of competent jurisdiction.
In addition to our successful advocacy with Finra, we have also been a strong proponent of the North American Securities Administrators Association's Model Act to Protect Vulnerable Adults from Financial Exploitation. Initially adopted in 2016, the Model Act has several key components:
• A mandatory reporting requirement when abuse has occurred or is suspected.
• Record sharing among states.
• The authority to delay disbursement of funds.
• Immunity protections for advisers and other financial professionals.
• An eligible adult can authorize a third party to receive a disclosure if an instance of potential fraud occurs on one of their accounts.
By the end of 2021, 33 states had adopted the Model Act, and as of this writing, four others are considering it: Massachusetts, Michigan, Wisconsin and Wyoming. We continue to engage bill sponsors and lawmakers in those states to voice our support and tell them why this issue is so important. We hope that eventually all 50 states adopt the Model Act.
In the future, we will continue to push for broader protections for vulnerable groups, doubling down on our ongoing efforts in Washington, D.C., and statehouses across the country. Meanwhile, we will also continue to work with our members to hold educational events for investors. Our seniors and other vulnerable adults deserve nothing less.
Dale E. Brown is president and CEO of the Financial Services Institute.
A 20-year financial services veteran brings values-driven planning expertise to the St. Louis-based RIA.
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