February 7, 2018
On Monday, February 5, 2018, two new FINRA regulations went into effect with the aim of assisting financial advisors and other securities dealers when there is a suspicion of financial elder abuse.
The first is a requirement that a financial advisor make reasonable efforts to obtain the name and contact information of a trusted contact person for the client. New clients must be asked at account opening; existing clients during account updates. A client is of course not required to provide a name. If a name is provided, the financial advisor is authorized to contact the trusted person if the financial advisor becomes concerned about financial exploitation, and to release limited information about the account and situation, but limited so as only to address the possible exploitation. Financial advisors must disclose this possible release of private information to clients.
This first regulation applies to all clients, regardless of age. Some financial advisors have already been asking for a trusted contact as a routine matter in their practices. They often find that a refusal to give a trusted contact can be a gateway to an important family conversation.
The second regulation is that a financial advisor who suspects or is concerned about financial exploitation is permitted to put a hold on disbursement of funds and securities (not trades) for up to 15 days, and another 10 day extension. The regulation does not require that financial advisors report suspected financial abuse to regulators or other government agencies, but if their own inquiries do not quell their concerns, they may be in a bind, as the new regulations do not provide immunity for disclosing confidential client information when reporting suspected financial abuse to state authorities.
This second regulation only applies to (1) those age 65 and older, and (2) any adult client who the financial advisor reasonably believes has a mental or physical impairment that renders the client unable to protect his or her own interests.
In addition to the FINRA rules, the North American Securities Administrators Association (“NASAA”) released a Model Rule in 2016 similar to the FINRA rule, but which mandates reporting of suspected financial abuse. In addition, it provides immunity for disclosing confidential client information in the process of that reporting. The Model Act has been enacted in at least 13 states. Massachusetts is not one of them.
FINRA is the Financial Industry Regulatory Association, a government-authorized non-governmental successor to the National Association of Securities Dealers, which regulates securities dealers. The government agency which acts as the ultimate regulator of the securities industry, including FINRA, is the Securities and Exchange Commission. The membership of NASAA consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.