Client: Field Guide to Preventing Elder Financial Fraud
Financial Professional: Why Fraud Matters to You

Why It Matters:
  • FINRA is enacting two new rules to help protect seniors from fraud.
  • The new rules went into effect February 5.
  • Research shows more than 5% of seniors fall victim to financial fraud.

New rules designed to protect seniors went into effect February 5, requiring Financial Industry Regulatory Authority (FINRA) member firms to make reasonable efforts to obtain contact information for a trusted contact person for a customer’s account in case of fraud and place a temporary hold on potentially fraudulent disbursement requests.

The new rules from the Financial Industry Regulatory Authority (FINRA) may be especially helpful for financial professionals who serve older clients. A 2017 study published in the American Journal of Public Health found 1 in 18 older Americans fall victim to scams and fraud, further noting that the findings probably underestimate the actual number. And the National Adult Protective Services Association reported elder financial exploitation is “widespread, expensive, even deadly.”

The rules (FINRA 4512 and 2165) were approved by the Securities and Exchange Commission (SEC) in March 2017, hailed as “key steps to protect investors.”

FINRA 4512 requires FINRA member firms to request the name of a trusted adult who may be contacted about the account if financial exploitation is suspected. FINRA 2165 applies to clients 65 and older, or adults who may be impaired. It allows firms to place a temporary hold on disbursements if exploitation is suspected.

“These rules will provide firms with tools to respond more quickly and effectively to protect seniors from financial exploitation,” FINRA President and CEO Robert Cook said in a news release.

FINRA also operates a toll-free helpline for seniors with questions about investments and brokerage accounts at (844) 57-HELPS (844-574-3577) available weekdays from 9 a.m. to 4 p.m. The Consumer Financial Protection Bureau (CFPB) provides a downloadable guide designed for seniors called “Money Smart for Older Adults,” and the SEC provides a list of “red flags” that may indicate potential elder fraud:

  • Sudden reluctance to discuss financial matters.
  • Unusual or unexplained account withdrawals, wire transfers, or other financial changes.
  • Cash or other items missing from the home.
  • Drastic shifts in investments.
  • Abrupt changes in wills, trusts, power of attorney, or beneficiaries.
  • Concern or confusion about missing funds.

Things to Consider:
  • You may want to review the new rules and discuss them with clients.
  • Older clients may not know about resources available to help them combat fraud.
  • Beginning February 5, financial professionals have been provided new ways to combat fraud and protect older clients.