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New Brokerage Account Safeguards to Protect Seniors From Financial Scams

estate planning taxesAs the population ages, elder financial abuse is a mounting problem. Vulnerable seniors can become victims of scammers who convince them to empty their investment accounts.

The Financial Industry Regulatory Authority (FINRA) regulates firms and professional selling securities in the United States.  Effective February 2018, FINRA set two new rules for investment brokers or advisors to protect seniors with brokerage accounts from financial scams that could drain the accounts before anyone notices.

Rule 1.  Trusted Contact Person

When a brokerage account is opened or information is updated on an existing account, the broker or investment advisor must ask the investor for the name of a trusted contact person, someone the broker can contact if there are questions about the account. The broker and trusted contact can address possible financial exploitation and update the customer’s contact information and health status or learn about any new legal guardian, executor, trustee or holder of a power of attorney.

Rule 2.  Temporary Hold Due to Suspicious Disbursement Request

The second rule allows a broker to place a temporary hold on a suspicious disbursement. This rule applies to accounts belonging to investors age 65 and older or investors with mental or physical impairments that the broker reasonably believes make it difficult for the investor to protect the investor’s own financial interests. Before disbursing the funds, the brokerage firm will be able to investigate the disbursement by reaching out to the investor, the trusted contact, or law enforcement.

Prior to the new rules, issues of privacy prevented a broker from contacting family members when suspicious activity was detected, and under previous FINRA rules, brokerage firms risked liability for halting suspicious transactions.

Since opening April 2015, FINRA’s Securities Helpline for Seniors received more than 12,000 calls and recovered more than $5.3 million for seniors whose investment funds were illegally or inappropriately distributed.  These new FINRA rules should improve seniors’ protection from financial scams.