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How Finra Wants You to Keep At-Risk Clients Safe

By Crucial Clips     October 4, 2017
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Oct. 4, 2017 

RITA RAAGAS DE RAMOS, SPECIAL PROJECTS MANAGER, FA-IQ: The protection of seniors, those aged 65 and above, against financial exploitation is a key priority for Finra. Finra says around 10,000 Americans will turn 65 every day over the next decade, with investors in this age group making up more than 75% of U.S. financial assets.

In 2015, Finra launched a Helpline for Seniors so senior investors – and people calling on their behalf – can get help from Finra or raise concerns about issues with brokerage accounts and investments.

BILL HUIZENGA (R-MI 2nd District): This hearing is entitled “Oversight of the Financial Industry Regulatory Authority.”

RITA RAAGAS DE RAMOS: In September, Finra CEO Robert Cook told the House of Representative’s Subcommittee on Capital Markets, Securities and Investments about Finra’s efforts to protect seniors.

ROBERT COOK: Senior issues and investor protection are a priority. In 2015, Finra launched a helpline that takes calls and investigates issues for investors. To date, we have received over 10,000 calls and as a result of this program firms have voluntarily returned nearly $4.7 million to customers.

RITA RAAGAS DE RAMOS: According to Sifma, seniors are susceptible to financial exploitation because many live alone, are vulnerable to scams and may be too trusting. Finra believes broker-dealers are best suited to help prevent the financial exploitation of seniors because they tend to know their clients very well and can identify any red flags.

Finra has gone a step further by helping protect senior investors from financial exploitation by third parties.

ROBERT COOK: We recently finalized a new rule to enable a temporary hold on a disbursement of funds or securities by firms in a senior investor's account when there is reasonable belief of financial exploitation. This rule appears to complement the key work this committee is doing to protect seniors and vulnerable investors through the Senior Safe Act.

RITA RAAGAS DE RAMOS: Finra Rule 2165 on the “Financial Exploitation of Specified Adults” allows broker-dealer firms to place temporary holds on disbursements of funds or securities from accounts of specified customers if there is reasonable belief of financial exploitation of these customers by third parties. The rule will become effective on February 5 next year.

Although this rule was created mainly to better protect seniors, it covers two sets of susceptible adults – adults aged 65 and older, and adults aged 18 and older who have a mental or physical impairment that renders them unable to protect their own interests.

The rule allows broker-dealer firms to place a temporary hold for 15 business days, starting from the day it was put on hold.

The hold can also be extended for 10 business days if the broker-dealer firm’s internal review of the facts support its reasonable belief of financial exploitation of the customer.

The hold period and extension can be terminated or stretched by an order of a state regulator, state agency or court.

Finra requires broker-dealers to retain records related to compliance with the rule.

Another Finra initiative related to protecting seniors is an amendment to Finra Rule 4512, on “Customer Account Information” to require broker-dealer firms to “make reasonable efforts” to obtain the name and contact information of a trusted contact person for a non-institutional customer’s account.

This amendment will also become effective on February 5 next year.