For accountants and tax professionals with clients who are about to retire or are in retirement, here's some news that could be of help. In a groundbreaking move, the Financial Industry Regulatory Authority (FINRA) has released two rules that establish the first nationwide standards for the protection of senior investors.
"These important changes, developed in collaboration with our members, provide firms with tools to respond more quickly and effectively to protect seniors and vulnerable investors from financial exploitation," said Robert L.D. Colby, FINRA's chief legal officer, in a statement. “With the aging of the U.S. population, financial exploitation is a serious and growing problem, and protecting senior investors remains a top priority for FINRA.”
Although the new rules were approved by the Securities and Exchange Commission a year ago, FINRA set the effective date for this year to allow firms to develop policies and procedures.
The need for the new rules became evident after FINRA talked to firms and also learned that calls to the Securities Helpline for Seniors revealed some of the issues they face.
According to FINRA, the helpline has handled more than 12,000 calls since its launch in April 2015. More than $5.3 million in voluntary reimbursements from firms to customers has been made since the launch.
Firms are required to collect information for a “trusted contact” when an account is opened or updated. That includes the names of associated people who are responsible for the account and a record of their responsibilities for the account as long as it’s not an institutional account. (Institutional accounts are those owned by a bank, insurance company, savings and loan association or registered investment company; or owned by a registered adviser with the SEC or with a state securities commission; or owned by anyone with total assets of at least $50 million.
The “trusted contact” is supposed to be a resource for firms in handling customer accounts, protecting assets and responding to possible financial exploitation of senior investors.
Members don’t have to meet the rule’s requirements for accounts opened according to a prior FINRA rule until the member updates the information for the account.
Creates a “safe harbor” period that makes it permissive for advisors to hold disbursements from the account of a “specified adult” if several criteria are met. That includes investors 65 and older or individuals 18 and older who have a mental or physical impairment.
“It is a critical measure because of the difficulty investors face in trying to recover funds that they have inadvertently sent to fraudsters and scam artists,” FINRA states in the rule.
“Financial exploitation” means the wrongful or unauthorized taking, withholding, appropriation or use of a senior’s funds or securities; any act or omission by a person, including someone with the power of attorney, guardianship or any other authority regarding the senior to get control through deception, intimidation or undue influence over the senior’s money, assets or property or convert the senior’s money, assets or property.
A member who relies on the rule should establish and maintain written supervisory procedures. The procedures should identify the title of anyone authorized to place, terminate or extend a temporary hold on behalf of the member and who is an associate serving in a supervisory, compliance or legal capacity for the member.
Members must retain records related to rule compliance and make them available to FINRA.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.