Protecting Older Investors From Financial Exploitation
Every year, millions of older investors become victims of financial exploitation, resulting in billions of dollars in personal losses. A frequent target of scammers, older Americans also might endure financial pressure from caregivers or family members, some of whom take advantage of trusting relationships for personal gain.
Protection of older investors has always been a top priority for FINRA and is the focus of several rules intended to thwart financial exploitation. These rules created uniform, national standards that allow brokerage firms to take steps to protect this group of investors and other specified adults. Some states have adopted similar rules as well.
Here's how FINRA rules can help protect older investors from financial exploitation.
Adding a Trusted Contact Person to Your Account
When you open a brokerage account or update information related to an existing account, a FINRA rule requires your brokerage firm to make reasonable efforts to obtain the name and contact information for a designated trusted contact person for the account. Adding a trusted contact person to your account puts your firm in a better position to keep your account safe. A trusted contact cannot make trades in your account or make decisions about your account, and being a trusted contact doesn’t make them a power of attorney, legal guardian, trustee or executor.
While you’re not required to provide this information to open an account, it might be a good idea to do so. By choosing to name a trusted contact, you’re authorizing the firm to contact someone you trust in certain circumstances, including to address possible financial exploitation and to confirm the specifics of your current contact information or health status or the identity of any legal guardian, executor, trustee or holder of a power of attorney. You’ll receive a written disclosure from your firm that lays out these details.
Having a trusted contact is recommended for all investors, regardless of age, but can be particularly helpful protection for older investors.
Placing Holds When Exploitation Is Suspected
Additionally, brokerage firms are permitted to place a temporary hold on a securities transaction, as well as on disbursements of funds or securities from an account, when there’s reason to believe financial exploitation might be occurring. The rule applies to accounts belonging to investors age 65 and older and to those with mental or physical impairments that the firm reasonably believes make it difficult for these investors to protect their own financial interests.
If your firm suspects financial exploitation, it may put a hold on such transactions or disbursements from your account for up to 15 business days. The firm must conduct an investigation and attempt to notify you and your trusted contact.
If the firm gathers information that supports its suspicion of financial exploitation, it may continue the hold on the transactions or disbursements for another 10 business days.
Depending on what its investigation finds, the firm might refer the matter to an adult protective services or law enforcement agency. If the firm has reported the matter to a state authority, the temporary hold may be extended for an additional 30 business days (or longer, if the state authority asks for additional time).
These rules might not be able to stop people from trying to take advantage of older investors. But providing brokerage firms with helpful tools to respond to situations in which they have a reasonable basis to believe that financial exploitation is occurring can make it more difficult for scammers to succeed. It’s important for firms to have this ability when potential exploitation is suspected because, once the money has been disbursed, it’s very difficult to get it back.
Importantly, brokerage firms aren’t permitted to use the rule to pause a transaction or disbursement when they don’t suspect financial exploitation.
Identifying Potential Conflicts of Interest
There are also specific safeguards in place to address the potential conflicts of interest and risk of exploitation that can arise if a FINRA-registered professional acts as a beneficiary or holds a position of trust for a brokerage customer. Older investors who are isolated or suffering from cognitive decline are particularly vulnerable to harm.
A FINRA rule requires registered financial professionals to notify their brokerage firms if a customer names them as a beneficiary (such as in a will) or gives them a position of trust (like power of attorney or executor). The firm must then review the situation and either approve or deny this arrangement. There are certain exceptions to this rule, including when a registered professional is acting as a beneficiary for immediate family members.
A Serious and Growing Problem
Older Americans are one of the fastest-growing demographics in the country. One reason this population is attractive to scammers is because they’re more likely to have built up nest eggs, according to the FBI. The U.S. Department of Justice estimates that financial exploitation and fraud involving older investors has been growing rapidly, with billions of dollars stolen or defrauded from millions of older Americans every year.
You can get help to report elder abuse and financial exploitation by calling the U.S. Department of Justice’s National Elder Fraud Hotline at 1-833-FRAUD-11 (1-833-372-8311). If your concern relates to cyber-enabled crime, FINRA encourages prompt reporting to the FBI’s Internet Crime Complaint Center at https://www.ic3.gov. Financial recovery of funds lost to scams might not be possible, but reporting certain losses promptly—within the first two to three days—can increase the likelihood of recovering funds in some cases.
FINRA also has tools and resources to help senior investors. If you have questions about your brokerage account statements or investments, contact FINRA’s Securities Helpline for Seniors toll-free at 844-57-HELPS (844-574-3577).
Learn more about red flags of fraud and protecting your money.
