Relatives and those FINRA identifies as “trusted contacts” should contact a securities attorney if they suspect elderly financial abuse. Advisory firms and the Financial Industry Regulatory Authority (FINRA) are supposed to have rules in place to stop seniors from experiencing financial abuse, but their rules and regulations may not do enough. For instance, FINRA Rule 2165 makes it possible for a member to place a hold on an account in the case of suspected financial abuse, but these holds only apply to disbursements, and not securities transactions. “Securities transactions” include buying and selling securities.

Elderly Americans face the threat of financial abuse from family members as well as opportunistic scammers and greedy financial advisors. (FINRA defines “elderly” as over 65.) This is an all-too common problem — the National Elder Mistreatment Study (NEMS) found that 5.2% of older surveyed adults had experienced financial abuse. If you or someone you know suspects financial abuse of an elderly person, contact a securities attorney.

FINRA’s Definition of Elderly Financial Abuse

Under Rule 2165, FINRA defines financial exploitation as any of the following:

  1. The wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult’s funds or securities;
  2. Any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority regarding a specified adult to:
    1. Obtain control, through deception, intimidation, or undue influence, over the specified adult’s money, assets, or property; or
    1. Convert the specified adult’s money, assets, or property.

Trusted Contacts Can Help Prevent Financial Abuse

Rule 4512 covers what information a member must maintain for an individual’s account. This includes “trusted contact” information. The trusted contact is someone the account holder designates as someone they feel they can trust with information regarding their account.

 The absence of a trusted contact will not prevent a member from opening or maintaining a client account, but they must make a reasonable effort to find the trusted contact if they exist, especially in the event of suspected financial abuse. Members can also reach out to trusted contacts if they suspect that the customer may be suffering from Alzheimer’s disease, dementia, or other forms of diminished capacity. Notably, suspicion of cognitive decline does not give the member the right to place a temporary hold – they can only reach out to the trusted contact and share their concerns.

There are no limits about who can serve as the trusted contact, except that they must be at least 18. It could be a securities attorney, a trustee, a joint accountholder, or someone that has power of attorney, or anyone else the investor deems suitable.   

How Temporary Holds Work

Once the hold is in place, the member firm can review the circumstances surrounding the disbursement. In the event of a temporary hold, the member must notify every person who is authorized to conduct business in that account, except for the people the member believes may be involved in elderly financial abuse.

The temporary hold authorized under Rule 2165 expires after 15 business days, unless otherwise terminated or extended by a state regulator, or another agency of competent jurisdiction. If the member’s review reveals that financial exploitation is occurring or will occur, the member can extend the hold for 10 business days.

FINRA requires that members – i.e., brokerages and advisory firms, identify the title of each person authorized to place, terminate, or extend a temporary hold on behalf of a member. This person must be an associated person who serves in a supervisory, compliance, or legal capacity for the member.

Limitations for Rule 2165

Rule 2165 has many limitations – limitations that make it more difficult for members to stop fraud. For instance, the rule only applies to disbursements from the account. It does not apply to securities transactions, leaving a loophole for unethical brokers. To circumvent Rule 2165, a broker might convince a senior to liquidate certain securities in order to purchase high-risk securities that come with significant commissions for the broker.

Certain firms have requested that the holds last longer, indicating that 25 days –15 days plus the 10-day extension — is not long enough for them to conduct a thorough review.

The Best Defense Against Elderly Financial Abuse

In the event you suspect you or someone in your family has suffered losses because of elderly financial abuse, you should contact a securities attorney who also has experience with elder abuse cases. Attorneys at Fitapelli Kurta have substantial experience with both elder abuse cases as well as securities law. Call (877) 238-4175 or email info@fkesq.com.

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