Diminished mental capacity makes seniors and other adults suffering from a mental impairment likely targets of financial exploitation. The Financial Industry Regulatory Authority, commonly known by the acronym FINRA, is charged with regulating broker-dealers and their registered representatives. To address concerns about financial exploitation of seniors and other adults suffering from mental impairment, FINRA has amended FINRA Rule 4512 and implemented new FINRA Rule 2165, both effective February 5, 2018.
Rule 2165 permits a broker-dealer to place a temporary hold on suspicious disbursements from the account of a senior or other impaired adult for up to 15 business days to give the broker-dealer time to confirm the legitimacy of the disbursement. The amendment to Rule 4512 requires that the broker-dealer make reasonable efforts to obtain a trusted contact person for the senior or other impaired adult at the time the account is opened or account information is updated. The broker-dealer may contact the trusted contact person to determine the customer’s health status and disclose information about the customer’s account to address possible financial exploitation.
Rule 2165 provides that broker-dealers relying on the rule shall establish and maintain written supervisory procedures to identify possible financial exploitation of seniors. The intent of the amendment to Rule 4512 and new Rule 2165 is that such supervisory procedures combined with the ability to respond to suspicious disbursements from seniors’ brokerage accounts will create a level of protection against financial exploitation of seniors. These rules are not limited to full service brokers, and there is no reason why oversight required by these rules should not apply to discount brokers regardless of whether they have any involvement in the customer’s investment decisions or the management of the account has been delegated to an independent investment advisor. As with all rules, however, they are only effective when they are conscientiously implemented.