Welcome to Financial Advisor IQ

New Senior Investor Protection Rules Start Today

By Rita Raagas De Ramos February 5, 2018

Two key senior investor protection initiatives -- a new rule and an amendment to an existing rule -- are taking effect today.

The "Financial Exploitation of Specified Adults" Finra Rule 2165 lets broker-dealer firms place temporary holds on disbursements of funds or securities from the accounts of specified customers if there is reasonable belief of financial exploitation of these customers by third parties. Although the rule was created out of the need to better protect seniors, it actually covers two sets of adults the self-regulator believes "are particularly susceptible to financial exploitation." These are adults aged 65 and older as well as adults aged 18 and older who have a mental or physical impairment that renders the individual unable to protect their own interests.

Examples of potential perpetrators of financial exploitation include someone with power of attorney, guardianship, or any other authority over the specified adult.

The rule lets broker-dealer firms put the specified customer’s account on temporary hold for 15 business days if they believe the customer is a victim of financial exploitation. The hold can be extended by the broker-dealer firm for 10 more business days if the firm’s internal review of the facts and circumstances supports its reasonable belief of financial exploitation of the customer.

The hold period and extension can also be terminated or prolonged by order of a state regulator, state agency or court. Finra requires broker-dealer firms to retain records related to compliance with the rule.

And in an amendment to the "Customer Account Information" Finra Rule 4512, broker-dealer firms now will be required to ask a customer for a trusted contact person. However, the customer will not be required to provide one. A trusted contact person must be at least 18 years old and can be anyone chosen by the customer -- including someone who holds power of attorney, a trustee or a joint account holder.

The broker-dealer firm will be expected to ask for the trusted contact person upon the opening of a customer’s account or when updating an existing account’s information. The broker-dealer firm will be required to disclose to the customer that it will contact the trusted contact person and share information about the customer’s account to address possible financial exploitation as well as to confirm the specifics of the customer’s current contact information, health status or the identity of any legal guardian, executor, trustee or holder of a power of attorney.