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FINRA Creates New Elder Financial Abuse Rules

Financial exploitation of the elderly is a common - and well-known - problem. The Securities Industry and Financial Markets Association estimates that one out of five individuals over the age of 65 has suffered financial exploitation. Only a small percentage of the cases are ever reported. Some victims are not aware of the abuse. In some situations, spouses of seniors, adult children of elderly individuals or close friends may have suspicions of financial exploitation. However, professionals, such as accountants or other advisors may detect financial mistreatment.

In February, Financial Industry Regulatory Authority issued two new rules in an effort to protect seniors from financial abuse in securities transactions. Brokers, financial advisors and brokerage firms are expected to make reasonable efforts to acquire the name and contact information of an individual that the senior trusts. The regulation aimed at seeking a trusted contact applies to situations when professionals are opening a new account for a senior, or when financial professionals are updating an existing account with a senior client.

If suspicions of financial abuse or concerns about diminished capacity arise, the brokerage can notify that trusted individual to protect the senior's account. A second provision allows firms to hold disbursements of any funds if there is a suspicion of abuse to, at least temporarily, protect the senior's resources.

It is important to note that actually obtaining the identity of a trusted contact person is not a requirement of the new senior protection rules.  If a senior declines to provide any information, the rule does not require the broker or firm to continue to seek information related to a trusted contact. Similarly, the temporary hold on disbursements acts as a safe harbor for the brokerage firm. The hold is temporary. The initial hold is expected to last for 15 days, which can be extended for an additional 10 days.

SIFMA estimates that financial exploitation of the elderly amounts to roughly $2.6 billion each year. Many seniors, or family members of victims, seek the assistance of aggressive lawyers who have a solid command of securities laws and regulations to recover money that has been fraudulent taken away from vulnerable adults.

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Girard Bengali, APC
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