The FINRA has instated two new rules this week to combat financial abuse and fraud against the elderly and other vulnerable adults.
The two rules are: firms now being required to make every reasonable effort to get the name and contact information of a trusted person for a senior customer, and to place a temporary hold and not disperse funds if the adviser believes the senior investor may have been exploited.
If the latter occurs, the adviser must reach out to the trusted contact while the funds are on hold.
The regulations went into effect on Monday.
FINRA’s Securities Helpline for Seniors sparked the enactment of these rules.
More than 12,000 calls have been made to the helpline in regard to fraud and exploitation in roughly the past three years, the self-regulator said, recovering $5.3 million in voluntary reimbursements to customers.
Financial abuse is the second most common reported form of abuse against the elderly, behind psychological abuse, according to a recent study of people 60 and older published in the journal Lancet Global Health.
The rules can have a major impact on the safety of the elderly and their assets, said Nick Nichols, vice president of risk and compliance at regulatory and compliance firm DST.
“There is less risk of those folks losing funds that they won’t be able to get back,” he said.
Still, more needs to be done.
“Bad actors continue to evolve in their techniques,” he added.
That means the financial industry has to develop personnel training to know what to look for and be proactive before a possible breach.
The FINRA rule, known as 4512, says the absence of a trusted contact person’s name or information does not prevent an adviser from opening or maintaining an account, so long as the adviser has made an effort to obtain the information of a trusted contact.
The advisers will also have to update the contact information periodically along with the customer’s records.
There are other ways advisers can help fight elder financial abuse.
First, to know the signs: the elderly client may seem more submissive or fearful toward new associates, or aggressive family and friends; the client makes abrupt changes to financial documents, such as a will or deed; and the client has unusual changes to his or her financial management habits, such as trying to wire large sums of money or establish new joint accounts.
Advisers may also note when elderly clients become forgetful of their information, and may not be of full capacity to care for their own assets anymore.
Financial advisers may want to foster relationships with trusted family members or other contacts before this happens, so there’s someone to alert in case of fraud or an emergency.