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How FINRA is Addressing Elder Financial Fraud


As Americans get older, FINRA regulations hope to prevent many people from becoming victims of investment fraud

Nearly 20% of all Americans 65 and older have, at one time or another, become the victim of elder financial fraud – and with this age group one of the most rapidly-growing segments of the U.S. population, regulatory agencies like FINRA have decided they need to take new steps to combat the problem.

Senior’s growing segment of U.S. wealth makes them a ripe target for unethical brokers and financial advisors

Baby-boomers not only comprise an increasingly large share of the U.S. population; since their wealth has had time to grow for decades, they also collectively own an incredibly large share of overall U.S. assets – a combined 30 trillion in net household wealth, according to some estimates. While younger boomers, such as those in their mid-to-late 60s, may not be especially susceptible to fraud and abuse, those entering their mid-to-late 70s often begin to experience increasing cognitive decline, making it increasingly easy for unscrupulous financial advisors to recommend unsuitable investments, engage in unauthorized trading, or churn client accounts for personal financial gain.

In 2015, FINRA opened its helpline for seniors, allowing seniors, family members, and financial professionals to report suspected abuse

After beginning to appreciate the true scope of the elder financial abuse crisis in the U.S., in 2015 FINRA decided to take action by creating a helpline for seniors, which regulators say has exposed an even higher rate of elder financial abuse than was originally believed to exist. In the helpline’s first year alone, it helped return more than $1.3 million to seniors across the U.S., with that number expected to greatly increase in upcoming years.

In early 2017, FINRA took further steps to protect seniors when it amended rule 2165 and amended rule 4512

In an effort to expand financial protections for seniors, FINRA recently rolled out new regulations to help firms take a more active role in protecting their clients from abuse. Rule 2165 allows a firm to put a 15-day hold on certain kinds of account activity in accounts of clients 65 or older, or those over 18 who may be mentally disabled or otherwise impaired, if managers reasonably believe that financial exploitation may be occurring.

The rule mandates that financial firms specifically identify the individual employees (and their positions/titles) who are allowed to place or remove holds on certain kinds of customer transactions. In addition, these individuals must be either supervisors, advisors, or compliance employees for the firm, and the parties affected (i.e. account holders and others authorized to make transactions on their accounts) must be notified, both verbally and in writing, with 48 hours of the hold being placed.

In addition to the creation of rule 2165, FINRA has affected changes to rule 4512, which mandates that firms “make a reasonable effort” to get the name and contact information of a trusted contact person that can help the firm determine if an account holder may be being subjected to financial elder abuse. Contact persons need to be 18+, and must be authorized by the client to confirm info about a client in case of emergency and to identify guardians, executors, and others that may need to be contacted in specific situations.

FINRA’s website contains a variety of resources for senior investors and their loved ones, and continues to examine the financial industry

Despite the growing problem of senior financial and investor abuse, FINRA is continuously attempting to make it safer for seniors to invest, partially by identifying potential threats and conducting regulatory investigations to determine the risk posed to senior investors. As a part of those investigations, FINRA has determined that sales seminars – especially those offering the proverbial ‘free lunch’ – may be exploiting seniors, often by attempting to convince them to purchase highly unsuitable and potentially risky investments.

FINRA Investor Education Foundation helps fund awareness campaigns

In 2003, the FINRA Investor Education Foundation was created to develop local partnerships with state and community organizations in order to educate investors about financial fraud, broker abuse, and other issues. Since then, the foundation has distributed fraud prevention resources to hundreds of thousands of investors across the country, including literature and messages specifically designed to help seniors and their caregivers take a more active role in preventing elder financial abuse. FINRA hopes that the continued activities of the foundation, as well as recent changes in legislation, will help it better monitor, enforce, and protect senior investors from fraud.

If you suspect an elderly friend or loved one is a victim of financial abuse involving a broker or advisor, contact an experienced attorney

Helping elderly individuals who are victims of financial fraud and abuse can be a serious challenge, and the laws are not always sufficient to stop it. As the population of elderly individuals grows, financial scammers and unscrupulous brokers see millions of potential new victims. To prevent elder financial abuse from getting out of hand, investigate suspicious behavior and activity as soon as possible. And if you think you see evidence of elder financial fraud, contact an experienced securities arbitration and elder financial fraud attorney immediately.

The attorneys at Silver Law Group are leaders in the field of securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor. Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. Contact us for a complimentary consultation about your situation.

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