NEW RULES AND OTHER PROPOSED ACTIONS
In April, 2015 the Financial Industry Regulation Authority (FINRA), an independent agency chartered by Congress, established a helpline for seniors. On average, the helpline receives over 100 calls per month. Many of those calls, FINRA states, highlight the concerns and daily issues that the financial industry face when handling senior investing. FINRA indeed listened to these concerns and on October 15, 2015 created two potential rules governing the financial industry to help address some of the issues raised in the helpline calls. All of the proposed changes revolve around the need to protect against the financial exploitation of seniors and other vulnerable adults. In addition, FINRA also announced plans to amend its new account application template, to help “capture trusted contact information.”
TRUSTED CONTACT PERSON
The first step in the process to creating any agency (or authority in this case) rule is the public comment period. The first proposed rule, FINRA Rule 4512, would require financial firms to make reasonable efforts to obtain the name and contact information for a “trusted contact person.” The goal is to help the firm and others prevent the financial exploitation of the client. Firms may still open an account in the absence of this information and must make reasonable attempts to obtain this information for existing accounts. The trusted contact person can be of assistance to the firm when deciding whether actual exploitation is occurring or occurred.
TEMPORARY HOLD ON DISBURSEMENT OF FUNDS
Possessing “trusted contact person” information is meaningless unless it can use it for the benefit of the client. As such, FINRA also proposed FINRA Rule 2165 which permits firms to place a temporary hold on the disbursement of funds whenever the firm reasonably believes that financial exploitation is occurring. The firm has a “safe harbor” when they hold disbursement of funds under certain circumstances. Conversely, the firm is not under any legal obligation to hold disbursement of funds even if it suspects financial exploitation. Finally, a “qualified person” may unilaterally decide to place a hold on disbursement of funds. Once the firm places the account on hold, it must attempt to contact the trusted contact person that there is a hold, unless it is suspected that the trusted contact person is doing the exploiting.
NEW ACCOUNT APPLICATION TEMPLATE
The final action that FINRA is taking in response to the issues raised via the senior helpline is to create a new account application template. FINRA created the template form with the assistance and input of “senior industry professionals and other regulators.” As noted, the new template helps to capture the “trusted contact person” information noted above for the firm. Of particular importance is that the form now presents the terms and conditions in plain english, highlights certain disclosures and incorporates investor education information. Use of the form is by no means binding on firms covered by FINRA.
UNADDRESSED ISSUES AND PUBLIC COMMENTS
There are a number of questions and concerns that FINRA identified, which are of specific concern and which FINRA would like to have addressed during the public comment period.
- Should the firm require the consent of the client to contact the “trusted contact”?
- What information can be relayed to the “trusted contact”?
- How do firms currently manage the risk of obvious financial exploitation?
- Is the firms’ response dependent on whether or not the exploitation was an attempt or actually occured?
- Is the firms’ response dependent on whether or not the exploitation occured in the past, ongoing or likely to occur in the future?
- Will firms take into account potential legal liability when it decides to place a temporary hold under the proposal?
- Should the the definition of an account include accounts in which the protected adult is a beneficiary and not the principal?
While the proposed rules may result in actual protection of many individuals, no one has a better tool bag of skills and knowledge than an elder law attorney. Many of these issues could be best addressed by consulting with an elder law attorney, who can tailor a plan to protect all parties from exploitation and reduce its risk to a manageable level.