A new FINRA regulation designed
to prevent financial exploitation of seniors will spur what could be delicate
conversations between brokers and older clients.
The rule, which goes into effect
on Feb. 5, requires that brokers make a reasonable effort to identify a trusted
person who can be contacted if the broker is concerned that the client is
suffering from diminished mental capacity or is the target of a scam.
The request for a trusted contact
must be made at account openings for new clients and during account updates
with existing clients.
The regulation also provides
brokers with liability protection if they place a hold on disbursements from an
account because they think their clients could be harmed.
If the client declines to provide
a trusted contact, the broker does not have to keep pushing, according to a set
of frequently asked questions posted on the
website of the Financial Industry Regulatory Authority Inc.
But that initial conversation
could be tricky.
"We have to be real careful
with that, especially with seniors, because it's a touchy subject," said
Amy Daniels, an Edward Jones adviser
in Searcy, Ark. "It's a simple question: Who do they trust? It may be the
first time a financial adviser has asked that question."
Ms. Daniels has been gathering
trusted contact information for two years. She's found that the discussion of
what to do if the client declines is a gateway to a family conversation.
"That's when I really get
into the what ifs, in the family meeting," she said.
RBC Wealth Management brokers also have been obtaining
trusted contacts for a number of years. Angie O'Leary, RBC head of wealth
planning, recommends that discussion be placed in a larger context.
Conduct "a wealth planning
conversation with the client rather than just focusing on the regulatory
requirement," Ms. O'Leary said. "Then they're having a richer
Wells Fargo Advisors has had a
program in place since 2014 to protect older clients. The trusted contacts are
a key part of the system, according to Ron Long, the firm's director of
regulatory affairs and elder client initiatives.
"We use the trusted contact
information as part of the escalation process to protect the client," Mr.
Long said. "In the majority of cases, the trusted contact gets involved
and helps resolve the situation. We are well above 50% where a trusted contact
or a client or a combination of both are appreciative that we decided to step
The Finra rule gives brokers a
safe harbor if they stop disbursements from a client's account. They can place
an initial hold for 15 days and then extend it for another 10 days.
The Finra rule does not require
that brokers report suspected elder abuse to regulators or other government
agencies, but Joseph R.V. Romano, president of Romano Wealth Management in
Evanston, Ill., said that's what they should do anyway during a disbursement
"The 15 days is giving you
the opportunity to escalate this to the proper authorities, like the Adult
Protective Services in your state," said Mr. Romano, a member of the Finra
Mr. Romano, who has participated
in industry conferences on senior exploitation, spoke about the Finra rule from
his perspective as a firm owner, not on behalf of Finra or the board.
APS can investigate the suspected
"You're escalating this to
an agency that is prepared to make that evaluation," Mr. Romano said.
At larger firms, such as Edward
Jones and Wells Fargo Advisors, escalation means getting compliance or field
office supervisors involved in the decision on whether to hold a disbursement.
As the Finra rule is going into
effect, several states have implemented or are
considering a model elder-abuse rule drafted by the North American Securities
Administrators Association. The NASAA regulation is similar to Finra's but
requires that financial advisers report suspected abuse to authorities.
Mr. Long doesn't foresee
conflicts between the rules.
"I think brokers can follow
the Finra model and enhance it with whatever state rule may exist," he
The bigger challenge for brokers
may be dealing with older clients who resent the idea that they have to prepare
for the stage in life where they begin to decline.
Brokers' "interest in doing
the right thing for their client and protecting their client will outweigh the
concern about the client pushing back," Mr. Romano said.
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