Senior Investor Protections

5.5.4 Senior Investor Protections

Introduction

As the population of senior investors continues to grow, the need for robust protections against financial exploitation becomes increasingly critical. Senior investors, often defined as individuals aged 65 and older, or those with mental or physical impairments, are particularly vulnerable to financial scams and unsuitable investment practices. This section explores the vulnerabilities faced by senior investors, the regulatory frameworks in place to protect them, and best practices for financial firms and professionals.

Vulnerabilities of Senior Investors

Senior investors may face unique challenges that make them susceptible to financial exploitation:

• Cognitive Decline: As individuals age, they may experience cognitive decline, which can impair their ability to make sound financial decisions. This vulnerability can be exploited by unscrupulous individuals or entities.

• Isolation: Many seniors live alone or are socially isolated, making them prime targets for fraudsters who prey on their loneliness and lack of immediate support.

• Trusting Nature: Seniors often come from a generation that is more trusting and less skeptical of financial offers, which can lead to increased susceptibility to scams.

• Accumulated Wealth: Having accumulated savings over a lifetime, seniors may have significant assets, making them attractive targets for financial exploitation.

Regulatory Framework

To address these vulnerabilities, regulatory bodies have established rules and guidelines to protect senior investors. Two key FINRA rules are central to these protections:

FINRA Rule 2165: Financial Exploitation of Specified Adults

FINRA Rule 2165 provides a framework for financial firms to address potential financial exploitation of senior investors. It allows firms to place temporary holds on disbursements of funds or securities from the accounts of specified adults when there is a reasonable belief of financial exploitation.

• Temporary Holds: Firms can place an initial hold of up to 15 business days if they suspect exploitation. This can be extended by an additional 10 business days if necessary.

• Specified Adults: The rule applies to individuals aged 65 or older and those aged 18 or older with mental or physical impairments that make them susceptible to exploitation.

• Notification Requirements: Firms must notify the trusted contact person and any parties authorized to transact on the account, unless these parties are suspected of the exploitation.

FINRA Rule 4512: Customer Account Information

This rule requires firms to make reasonable efforts to obtain the name and contact information of a trusted contact person when opening accounts or updating records. The trusted contact person serves as a resource for firms to address concerns about a customer’s health status, well-being, or potential financial exploitation.

• Purpose: The trusted contact person can be contacted if the firm suspects financial exploitation or needs to discuss the customer’s account status.

• Obtaining Information: Firms should make reasonable efforts to collect this information at account opening and during updates to customer records.

Trusted Contact Person

The concept of a trusted contact person is integral to protecting senior investors:

• Role and Purpose: A trusted contact person is someone the firm can reach out to if there are concerns about the investor’s well-being or financial exploitation. This person can help verify the investor’s situation and provide support.

• Implementation: Firms should encourage clients to designate a trusted contact person and explain the importance of this role in safeguarding their financial interests.

Temporary Holds on Disbursements

Temporary holds are a critical tool in preventing financial exploitation:

• Criteria for Holds: A hold can be placed if there is a reasonable belief that financial exploitation has occurred, is occurring, or will be attempted.

• Duration and Extension: The initial hold is for up to 15 business days, with a possible extension of 10 business days if further investigation is needed.

• Communication: Firms must communicate with the trusted contact person and authorized account parties about the hold, unless they are suspected of involvement in the exploitation.

Reporting and Escalation

Firms must have robust procedures for reporting and escalating concerns about potential exploitation:

• Internal Processes: Develop clear procedures for identifying and escalating concerns about potential exploitation, ensuring that all employees are aware of the steps to take.

• External Reporting: When required or permitted, report suspected exploitation to appropriate authorities, such as Adult Protective Services or law enforcement.

Communications with Senior Investors

Effective communication is key to protecting senior investors:

• Best Practices: Use clear, simple language and be patient, allowing extra time for discussions. Encourage the involvement of family members or trusted contacts when appropriate.

• Educational Resources: Provide seniors with resources and information to help them understand their investments and recognize potential scams.

Training and Education

Training and education are essential components of protecting senior investors:

• Employee Training: Regular training should be provided to employees on recognizing signs of cognitive decline or exploitation and understanding the regulatory framework.

• Client Education: Firms should offer educational materials and seminars to help seniors protect themselves from financial exploitation.

Glossary

• Financial Exploitation: The wrongful or unauthorized taking, withholding, or use of a person’s funds or securities.

• Trusted Contact Person: An individual designated by the customer whom the firm can contact regarding the customer’s account.

References

• FINRA Rule 2165: Financial Exploitation of Specified Adults

• FINRA Rule 4512: Customer Account Information

• FINRA Resources on Senior Investors: Protecting Senior Investors

SIE Exam Practice Questions: Senior Investor Protections