FINRA FOCUS: Senior Investors

FINRA’s recently released Regulatory and Examinations Priority Letter made specific mention of multiple critical areas that the regulator will be focused on for the upcoming year.  The one that we will focus on today is the Senior investor and the steps that are and should be taken to prevent elder abuse.

As we have discussed here before, with the growing population of senior aged investors, this demographic is becoming increasingly significant in the retail investor pool nationwide.  Baby boomers are beginning to hit retirement age just as advancements in technology and medicine are leading to longer and longer lifespans.

Per 2012 census data, there are 76.4 million baby boomers which represent close to one-quarter of the then estimated U.S. population of 314 million.  These figures have coupled with longer lifespans across the boards, means that there is the potential for disaster if baby boomers’ retirement savings are not properly managed.  FINRA recognizes that “the consequences of unsuitable investment advice can be particularly severe for this investor group since they rarely can replenish investment portfolios with fresh funds and lack the time to make up losses.”

In response, many firms are reportedly increasing and emphasizing internal guidelines to focus on suitability and to train their financial advisors about issues dealing with senior investors.  FINRA has stated that it will be monitoring these actions taken by member firms.  Specifically, FINRA’s examination focus will be on:

  1. Communications with seniors;
  2. Suitability of investment recommendations made to seniors;
  3. Training of registered representatives with respect to senior specific issues; and
  4. Supervision over registered representatives with the goal of protecting seniors.

While the FINRA examination focus is largely focused on ensuring registered representatives do the right thing for their senior-aged clients, registered representatives should be cognizant of when a senior-aged client is possibly being taken advantage of by family or other trusted individuals.

As individuals age and their capacities naturally diminish, they can (and unfortunately frequently do) become the targets of elder abuse.  Examples of elder abuse can include, but certainly are not limited to, an individual “weaseling” their way into a senior’s will, large transfers of cash or securities out of an investment or bank account to a third-party, and a third-party being designated as the new beneficiary of an investment or life insurance policy.  Each of these examples is a relatively simple way to essentially rob someone who cannot defend themselves.

Fortunately, financial advisors, along with an estate planners and accountants, form a line of defense for these vulnerable individuals.  When a client comes forward with a distant relative or other previously unknown third-party as a beneficiary may be a good time to ask some questions.  Similarly, monetary transfers from a client’s investment account for an unknown purpose or as a substantial gift may also warrant some further investigation or a discussion with a supervisor.

Recognizing these situations and the benefit that a well-intentioned and astute financial advisor can provide, regulators and lawmakers have begun a push to afford brokers and broker-dealers some discretion in holding off on certain suspicious transactions that bear some indicia of elder fraud.  For example, a handful of states have laws on the books that permit broker-dealers to pause transactions deemed to be suspicious.  Likewise, NASAA (the North American Securities Administrators Association) has proposed “An Act to Protect Vulnerable Adults From Financial Exploitation.”  This proposed legislation would provide numerous tools to prevent elder abuse, including a similar provision “to delay disbursements from an account of a vulnerable adult if financial exploitation is suspected.”

Ultimately, there will be a continued focus on elder abuse an exploitation in the financial services industry this year and into the foreseeable future.  Registered representatives should be taking care to understand the issues that are coming up, the expectations that both their firms and the regulators have for them, and ensuring that their practices satisfy these expectations.

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