To Thine Own Elders Be True: New Rules in Effect Today

By Abigail Howd, Spring 2018 IAC Student Intern

New rules to protect investors who have reached retirement age go into effect today. Now that our nation’s baby boomers are turning 65 or older, a large portion of the population is now being targeted by fraudsters in the investment industry. A survey conducted in 2012 showed that older investors were 34% more likely to lose money to fraudulent investments than investors in their 40s. More specifically, the study found that “[r]espondents age 65 and older were more likely to be solicited (93%), more likely to engage (49%), and more likely to have lost money (16%) than younger respondents.”

FINRA’s new rules seek to prevent fraudsters from being able to take advantage of these older investors. The new Rule 2165 (Financial Exploitation of Specified Adults) allows FINRA members to temporarily place holds on funds or accounts of seniors or otherwise incapacitated adults in four potential scenarios:

(1) a fraudster has financially exploited the senior;

(2) a fraudster is currently financially exploiting the senior;

(3) a fraudster attempted to financially exploit the senior; or

(4) a fraudster will attempt to financially exploit the senior.

The rule defines “financial exploitation” broadly to cover the taking, holding, or use of the senior’s funds or securities without permission. It also covers any attempt to take the senior’s money, asserts, or property through deception, intimidation, or undue influence. The rule also requires that FINRA members make and keep records detailing their efforts to follow the rule.

The amendment to Rule 4512 (Customer Account Information) requires FINRA members to try to get the name and contact information of a person the older investor trusts. The FINRA member may contact this trusted contact person if she is unable to get in touch with the senior, is concerned about the senior’s mental or physical health, or needs to discuss any holds or exploitation of the senior’s account.

While many older investors might not like the idea of another person being so intimately involved in their finances, it is always good to know someone you trust has your back. The rules specifically allow the investor to pick a person he trusts to ease any potential discomfort. When something as important as your financial security is on the line, everyone should have a trusted contact person to look out for his or her best interests.