FINRA views the protection of senior investors, as well as baby boomers who are retired or approaching retirement, as a top priority. Because a large number of American investors are approaching retirement and control a substantial portion of investment assets, FINRA encourages firms to review and, where warranted, enhance their policies, procedures and practices, in light of the special issues common to many senior investors.
For example, a firm’s procedures and controls should take into consideration the age and life stage (whether pre-retired, semi-retired or retired) of their customers. Of particular concern to FINRA is the suitability of recommendations to senior investors, communications targeting older investors, and potentially abusive or unscrupulous sales practices or fraudulent activities targeting senior investors.
FINRA’s Efforts in this Area
During 2006 and 2007, FINRA conducted a regulatory sweep, reviewing sales activities and other practices regarding “free lunch” seminars. FINRA collaborated with the SEC and the North American Securities Administrators Association (NASAA) and the New York Stock Exchange Member Regulation Inc. (now combined as FINRA) in completing this effort.
The results of these examinations led regulators to conclude that financial services firms should take steps to supervise sales seminars more closely, including reviewing and approving advertisements and sales materials for accuracy.
In addition, because seniors are pursued to attend sales seminars, firms should ensure that attendees understand that these are sales seminars intended to result in the sales of financial products. Seniors also should be informed that the seminars may be sponsored by another company with a financial interest in product sales.
Further, firms should ensure that the investment recommendations made during the sales seminars or during follow-up meetings are consistent with seniors’ investment objectives and other financial interests. The report summarizing this effort was published in September of 2007.
In November 2011, FINRA issued Regulatory Notice 11-52 addressing the use of certifications and designations that imply expertise or specialty in advising senior investors (senior designations). The notice outlines findings from a survey of firms which focused on the prevalence of senior designation usage, the extent to which particular senior designations were used or prohibited, and the supervisory systems in place regarding senior designations. It also highlights practices used by firms regarding the use of senior designations.
FINRA encourages firms to consider strengthening their supervisory procedures by implementing, as appropriate to their business, the sound practices outlined in this notice.
In 2013, FINRA, in a cooperative effort with the SEC, initiated an assessment of firm’s policies and practices regarding their senior investor clients. This on-going effort focuses on suitability, disclosures, misrepresentation, advertising, pricing, compensation and supervision relating to recommended products and services.
The assessment also reviews firm’s written supervisory procedures to determine whether firms have placed adequate controls to identify potential financial abuse of senior investors or individuals with diminished mental capacity. We have found, among other things, that age plays a role in many firms’ supervisory processes.