The elderly can be easy targets for financial fraud, and the Securities and Exchange Commission has just approved a new rule to protect this vulnerable population.
Rule 2165, Financial Exploitation of Specified Adults, will allow broker/dealers to put a temporary hold on disbursements from accounts if they have reasonable suspicion of financial exploitation. The SEC also made amendments to the rule on Customer Account Information that will require “reasonable efforts to obtain the name and contact information for a trusted contact person.”
These changes come following a significant change in demographics; the number of Americans approaching retirement or already retired is rising. In the past ten years, the number has risen from 36.6 million in 2005 to 47.8 million in 2015. By 2060, the figure is expected to rise to 98 million. According to FINRA, 75% of financial assets in the US are held by investors over the age of 65.
An aging population is at greater risk for financial exploitation, which is defined by the National Adult Protective Services Association as an instance when “a person misuses or takes the assets of a senior or other vulnerable adult for his own personal benefit. Assets are generally taken through deception, false presence, coercion, harassment, duress and even threats.”
In 2013, FINRA and the SEC began assessing investment firms’ policies and practices involving senior clients. They looked at the type of securities sold to these clients, how representatives were trained, and how firms address issues related to exploitation. In response, in 2015 FINRA established a toll-free number for seniors to seek assistance with concerns related to financial exploitation. Since the launch, FINRA notes that it has answered more than 8600 calls and obtained more than $4.3 million in reimbursements from financial firms.
The amended Rule 4512 requires that at account opening and updating, the broker dealer must make reasonable effort to obtain the details for a “Trusted Contact Person” from the account holder. The b/d must also offer a written disclosure stating that it may disclose information to this contact in attempts to address possible exploitation.
Rule 2165 offers protection to broker dealers that put a temporary hold on disbursements when exploitation of a “Specified Adult” is suspected. A “Specified Adult” is defined as someone over the age of 65 or 18+ with a mental or physical impairment that renders them unable to protect their own interests.
For more information, please read:
New FINRA Rules to Prevent Exploitation of Seniors | Wealth Management