Effective Practices from Firms' Senior Investor Protection Programs
In 2019, FINRA assessed firms’ senior investor protection programs, including their implementation of the FINRA Senior Exploitation Rules. In particular, FINRA evaluated how firms addressed risks relating to senior investors in their policies and procedures; gathered trusted contact person information; developed training relating to senior investors; implemented systems to escalate financial exploitation concerns; placed holds on disbursements in customer accounts; conducted senior investor exploitation investigations; and reported instances of financial exploitation.
Senior Investor Compliance Programs
FINRA observed that some firms developed comprehensive senior investor compliance programs—or integrated senior investor-related components into their existing programs—that demonstrated their commitment to the protection of senior investors and their appreciation of the many risks facing these customers:
- Written Supervisory Procedures – Firms developed, updated and enforced written supervisory procedures focusing on senior investors, which are required by FINRA Rule 2165(c)(1)-(2) (Financial Exploitation of Specified Adults):24
- Suitability – Firms considered suitability issues in the context of senior investors, including:
- Providing disclosure of additional risks or limiting products being marketed to senior investors;
- Having a clear, up-to-date understanding of investment objectives as a customer nears or begins retirement (e.g., importance of generating income, preserving capital or accumulating assets for heirs);
- Understanding a senior customer’s sources of income (e.g., whether the customer is living on a fixed income or anticipates doing so in the future);
- Gaining an awareness of how much income a senior customer may need to meet fixed or anticipated expenses;
- Asking about health care insurance and whether the customer may need to rely on investment assets for anticipated or unanticipated health costs;
- Addressing additional concerns for senior investors, such as shortened time horizons, potentially decreased risk tolerance and additional significant liquidity needs; and
- If applicable, considering potential cognitive decline when making recommendations to senior investors, and making additional efforts to explain the features and risks of products.
- Escalation Process – Firms implemented – and trained registered representatives to use – a comprehensive process to escalate issues relating to senior investors, including but not limited to concerns about financial exploitation, diminished capacity or cognitive decline.
- Training on Financial Exploitation and Diminished Capacity Red Flags – Firms developed FINRA Senior Exploitation Rules training25 for registered representatives via interactive, video-based or in-person sessions, as well as ongoing, regular reminders that included spotting and responding to red flags of financial exploitation, diminished capacity or cognitive impairment in their clients.
- Senior Investor Team – Firms created a dedicated senior investor team or, in smaller firms, dedicated staff in Compliance or Legal departments, to:
- Develop expertise on senior investor issues;
- Draft desktop procedures regarding the processes of the group;
- Facilitate broad training as well, as training tailored to specific groups that are likely to encounter red flags of financial exploitation or diminished capacity;
- Send periodic reminders to key staff about red flags and escalation requirements;
- Track federal and state requirements relating to senior exploitation, such as state laws that mandate reporting of potential exploitation and address holds on disbursements and transactions;
- Serve as an escalation point for senior investor-related inquiries from registered representatives and others;
- Conduct due diligence on situations where there may be suspected financial exploitation of senior investors;
- Determine whether to place holds on disbursements or transactions, and track those holds;
- Make resources available to firm customers and associated persons;
- Engage interdisciplinary experts—such as social workers—to assist Legal and Compliance staff focusing on senior financial exploitation;
- Report cases of potential senior investor financial exploitation to the relevant state APS, law enforcement, state securities regulators or other agencies; and
- File Suspicious Activity Reports.
- FinTech Tools – Firms supported senior investors’ use of vendor tools that:
- Highlight potential instances where a senior investor is at risk for poor financial decision-making or exploitation, and facilitate collaboration on financial decisions with trusted individuals; and
- Monitor alerts relating to any concerning or inconsistent financial activity, contact trusted individuals and assist with remediation efforts.
- Recognition for Superior Service to Senior Investors – Firms implemented programs to recognize—through internal awards, articles or other publications—registered representatives who successfully leverage firm resources to protect senior investors, especially those who go above and beyond to take care of senior investors.
Helpline Assists Firm With Temporary Hold to Protect Senior Investor from Losing $50,000 to Financial Exploitation from His Brother-in-Law
A brother-in-law of a senior investor called the Helpline, stating that the senior investor’s firm had “frozen” the senior investor’s account so the senior investor could not get access to $50,000 the senior investor needed for medical treatment. After the Helpline staff contacted the senior investor, he revealed that he needed the $50,000 to pay his brother-in-law a $10,000 per month retainer as his attorney and to invest in a movie deal his brother-in-law found. Helpline staff contacted the firm, which had placed a temporary hold on the disbursements because it was concerned their customer was being financially exploited. Helpline staff then called the state’s APS, which conducted a wellness check on the senior investor. Helpline staff referred the matter to the state securities regulator and local criminal authorities.
Firm’s Temporary Hold Prevents $200,000 Loss for Senior Investor Involved in a Central Intelligence Agency (CIA) Lawsuit Scam
A customer wanted to withdraw $200,000 from her IRA to cover the upfront fees for a $5.4 million lawsuit she believed she had won. The brokerage firm requested the customer provide the paperwork to verify the lawsuit and the customer stated that it was classified and related to the CIA. The firm indicated the disbursement would account for two-thirds of her assets, placed a temporary hold on the disbursement and contacted APS.
Implementation of the FINRA Senior Exploitation Rules
Some firms developed a number of effective practices to address the FINRA Senior Exploitation Rules:
- Engaging Customers – Firms trained registered representatives on how to discuss and request trusted contact person information for all non-institutional customers—not just senior investors26—and addressed customers’ concerns about firms’ maintaining privacy of their financial information from potential trusted contact persons by using new account forms, supplemental forms, scripts and pop-up screens that guide registered representatives’ conversations with customers.
- Removing Trusted Contact Persons – Firms advised registered representatives that they should not reach out to trusted contact persons who have been removed by the customer or those that the registered representative reasonably believes may be engaging in financial exploitation of the customer.
- Updating Trusted Contact Persons – Firms developed comprehensive policies and procedures for updating their customers’ trusted contact person27 and updated their forms or included a separate form as part of their annual account verification or confirmation process.
- Guidance and Permissions – Firms provided guidance to registered representatives regarding contacting trusted contact persons when placing a temporary hold28 and added provisions to client agreements to permit firms to contact trusted contact persons and put temporary holds on disbursements.29
- Account Monitoring – Firms leveraged advanced technologies to detect, prevent and predict potential diminished capacity or financial exploitation in senior investor accounts, including specialized senior investor-focused or existing fraud detection, anti-money laundering or Bank Secrecy Act account monitoring, surveillance reviews and exception reports, including but not limited to, those that focused on:
- Transaction types that are inconsistent with prior account activity, such as wiring money out of an account or not paying regular bills;
- Decreasing account balances; and
- Access failures or access for new individuals or from new locations.
Firm’s Temporary Hold Prevents Senior Investor from Losing Almost $10,000 in Lottery Scam
A customer contacted his firm because he believed he had won $1.5 million in a Las Vegas lottery. The scammers had convinced the senior that he would need to pay a special tax in advance in order to get his funds. The scammers further told the customer that Ohio, the state where he lived, had a grant available that would pay the majority of the upfront tax, so he only needed to pay $3,300. In further discussion with the customer, the firm learned that he had already paid over $6,000 to try to receive his winnings, using funds held at an account outside the firm. When the firm questioned the customer about having to “pay the tax” twice, the customer indicated the first place lottery winner did not claim their prize and he by default won both. The customer also instructed the firm not to tell his wife, as he wanted to surprise her with the lottery winnings. The firm placed a temporary hold on the disbursement and contacted APS, state regulators and law enforcement.
Firm’s Temporary Hold Helps Senior Investor Avoid $60,000 Romance Scam
A customer requested a $60,000 disbursement to an account in a different state to pay for the release of a General arrested in Afghanistan. The firm learned that this transfer was connected with the customer’s romantic relationship with someone on an online dating site, and she had previously sent money from an account outside the firm. The firm placed a temporary hold on the disbursement and contacted APS and local law enforcement.
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The Helpline’s work, regulatory initiatives, firm compliance programs and senior investor stories described in this report demonstrate the significance of protecting senior investors to the securities industry. FINRA remains committed to addressing risks relating to financial exploitation and providing relevant resources – such as this report – to firms and senior investors.
24 FINRA Rule 2165(c)(1) (Financial Exploitation of Specified Adults) requires firms that intend to rely on the rule to “establish and maintain written supervisory procedures reasonably designed to achieve compliance with this Rule, including, but not limited to, procedures related to the identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.” In addition, FINRA Rule 2165(c)(2) (Financial Exploitation of Specified Adults) requires firms’ written supervisory procedures to “identify the title of each person authorized to place, terminate or extend a temporary hold on behalf of the member pursuant to this Rule” where such person “shall be an associated person of the [firm] who serves in a supervisory, compliance or legal capacity for the [firm].”
25 Some firms did not develop training programs addressing the requirements of the FINRA Senior Exploitation Rules. The safe harbor provided by FINRA Rule 2165 (Financial Exploitation of Specified Adults) requires that they “develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of this Rule.” See Supplementary Material .02 of FINRA Rule 2165 (Financial Exploitation of Specified Adults).
26 FINRA Rule 4512 (Customer Account Information) Supplementary Material .06 applies to all non-institutional customers regardless of age.
27 FINRA Rule 4512 (Customer Account Information) Supplementary Material .06(c) requires firms, for all accounts subject to the requirements of Exchange Act Rule 17a-3(a)(17), to “make reasonable efforts to obtain or, if previously obtained, to update where appropriate the name of and contact information for a trusted contact person consistent with the requirements of [Exchange Act] Rule 17a-3(a)(17).”
28 FINRA Rule 2165(b)(1)(B) (Financial Exploitation of Specified Adults) requires that the firm “not later than two business days after the date that the [firm] first placed the temporary hold on the disbursement of funds or securities, provides notification orally or in writing, which may be electronic, of the temporary hold and the reason for the temporary hold to: … (ii) the Trusted Contact Person(s), unless the Trusted Contact Person is unavailable or the member reasonably believes that the Trusted Contact Person(s) has engaged, is engaged, or will engage in the financial exploitation of the Specified Adult…” (emphasis added)
29 FINRA Rule 2165(b)(1)(C) (Financial Exploitation of Specified Adults) requires that the firm “immediately initiates an internal review of the facts and circumstances that caused the member to reasonably believe that the financial exploitation of the Specified Adult has occurred, is occurring, has been attempted, or will be attempted.” (emphasis added)