Power of Attorney and Your Investments: 10 Tips from FINRA
Ray Pellecchia (212) 858-4387
WASHINGTON — Granting power of attorney (POA) for your investments to someone you trust can be a useful way to manage your finances in the event you should become unable to handle them yourself. In a new Investor Alert, the Financial Industry Regulatory Authority (FINRA) offers 10 tips to help investors understand, create and prudently use a POA for investment account assets. While a POA for your investments can be a great way to plan for the future, the alert warns that these arrangements have been used as a vehicle for abuse by financial professionals, family members and trustees to take advantage of clients, older parents, relatives and friends.
"It's only human to avoid thinking about ever having a medical issue that affects your capacity to oversee your investments. But one way to feel more in control of your financial life is to plan for any possible problem down the road," said Gerri Walsh, FINRA's Senior Vice President of Investor Education. "Power of attorney can be very helpful but takes some knowledge to use effectively, so it's much better to learn now how it works, before an unfortunate need arises."
The Investor Alert advises that depending on your circumstances, you may want to speak with an attorney who specializes in POAs. FINRA's top suggestions focus on how best to choose and set up a POA:
- Don't let anyone pressure you into signing a POA – Be cautious when giving someone control over your money, and take time to decide wisely. If you feel pressured into signing a POA for your investment assets, take a break and don't sign the document at that time. Contact other professionals to get a second opinion, such as your lawyer or financial adviser, and discuss your objectives and concerns. You may also contact FINRA's Securities Helpline for Seniors – HELPSTM at 844-574-3577.
- Select an agent who understands your investment goals – The individual should be a trusted individual who understands your investment objectives. Your agent doesn't have to be a financial expert, but rather someone who has at least the knowledge to be able to make financial decisions and communicate with your broker or adviser. If you have a joint account with your spouse, but your spouse is not your agent, be sure to consider how a POA might impact the management of your account in the event that you become incapacitated.
- Make your POA durable – The type of POA determines when your agent's authority takes effect and is rescinded. A durable POA remains in effect if you become incapacitated, while a non-durable POA would be rescinded. A durable POA provides clarity if you are unexpectedly not in a position to manage your finances; without one, a court may have to appoint someone to act for you.
- Find out if your financial institution has its own POA forms – When you are opening an investment account, or the next time you communicate with your financial professional, inquire about firm-specific POA forms. Many financial institutions have their own POA forms that they will want you to sign. If you don't use the forms your firm provides, they may ask you to provide additional information to establish the validity of your POA.
FINRA's additional suggestions include checking your state's requirements for POAs; knowing how to change or revoke a POA; and understanding the difference between a POA and discretionary and managed accounts. See the Investor Alert for all 10 tips.
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Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.