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Finra Clears Up Senior Exploitation Rule Concerns

By Alex Padalka January 5, 2018

The industry’s self-regulator, Finra, has released answers to frequently asked questions about rules related to preventing the financial exploitation of senior financial advice clients, which go into effect Feb. 5.

The new rules, approved by the SEC last February, allow advice firms to put temporary holds on disbursements when they suspect a client is being exploited while also requiring companies to make reasonable efforts to get contact information for a trusted person when opening accounts.

According to Finra’s guidance, advice firms can only put temporary holds on disbursement of funds or securities, but not on securities transactions within the account.

The industry’s self-regulator also suggests avoiding putting blanket holds on an entire account, and in cases where an advice firm deems it necessary, Finra says that legitimate disbursements — such as bill payments — should still be allowed. Disbursements should never be blocked unless there is a reasonable belief of financial exploitation, the regulator says in its guidance.

Advice firms are also allowed to put temporary holds on disbursements from one account to another at the same company. In addition, companies can extend temporary holds when requested by a state agency such as adult protective services, or regulators, without the need for a formal order from the agency or regulator. Furthermore, member firms are only required to keep a record of such requests but not to report the request to Finra, according to the guidance.

Finra also clarifies that a trusted contact on an account can be anyone over the age of 18, including joint account holders, people with power of attorney and trustees. But member firms must ensure they make a reasonable effort to find contact information for the trusted person for all non-institutional accounts, according to the guidance. Nonetheless, advice practices can still open the account if no trusted contact information is supplied, Finra says.

The new rules do not require new clients to submit contact information for a trusted person, according to the guidance. Member firms aren’t required to seek trusted-contact information for existing accounts until they do a scheduled update to account information as part of their regular business, the regulator says. And the new rules allow a single trusted contact for multiple accounts, according to the guidance.

Finra

Advice firms are required to disclose to the trusted person, in writing, that they may be contacted to confirm the client’s contact information, health status or identity of a legal guardian.

Finra says it will permit reaching out to a trusted contact after failed attempts to reach the client or on suspicion that the client could be suffering from diminished capacity.

The format of these written disclosures, meanwhile, is up to the member firms, but they must clearly state to the client that they give permission to the firm to contact the trusted person, according to the guidance.