Q. My 91year old father has a substantial brokerage account and likes to manage it himself. Yet I worry that he could easily fall victim to financial scams. Is there anything I can do to protect him?
A. Yes, there may be. The Financial Industry Regulatory Authority (“FINRA”), which regulates firms and professionals selling securities in the United States, recently received permission from the SEC to activate two new rules to protect senior investors: One rule now requires member brokers to make reasonable efforts to ask investor clients, age 65 years and older, to designate a Trusted Contact Person” (“TCP”) whom the broker may contact if the broker reasonably believes that financial exploitation has occurred or may be attempted, or where the investor shows signs of dementia or diminished capacity. Where exploitation is suspected, a companion rule authorizes the broker to place a temporary hold on disbursements of funds or securities from the customer’s accounts, pending further investigation.
These two rules are the result of a growing realization that financial exploitation of seniors is a very real problem, not only for the senior investors, but also for the brokerage firms when financial abuse is suspected. Previously, there were issues of privacy which prevented the broker from contacting family members when suspicious activity was detected, and prior FINRA rules prevented brokerage firms from halting suspected transactions without risking liability. The scope of the problem became apparent to FINRA after it placed into service its Securities Helpline for Seniors in April 2015: during its first two years of its operation, it fielded more than 8,600 calls seeking help and recovered more than $4.3 million for seniors. For Senior Helpline, call 1-844-574-3577.
For now, the new rules only apply to new accounts or to accounts that are updated, but not yet to existing accounts. That said, it is anticipated that the rule will soon apply, as well, to existing accounts even without an update.
The new rules protect not only seniors, but also younger persons aged 18 and older, whom the broker reasonably believes has a mental or physical impairment which renders such individual unable to protect his/her own interest.
I sense from your question that your father might take offense if you asked permission to monitor his accounts. The nice thing about the new FINRA rules is that the request will come from the broker, rather than from you, and to that extent may be more palatable to your father and other senior investors. Unfortunately, in your situation and until the new rules are extended to existing accounts, your father may need to submit some kind of update to his brokerage account in order to trigger application of the new rules. Alternatively, he might just ask his broker to add you as a ‘Trusted Contact Person’.
Where the brokerage firm suspects financial exploitation, and initiates a hold on disbursements, it must immediately begin an investigation to determine whether the hold may be extended. The initial hold is limited to 15 days, but may be extended an additional 10 days if there is sufficient cause. In the interim, a hold can be extended further by court order where the facts so warrant.
Another option is to consider elder protection monitoring through services such as EverSafe. Monitoring would send suspicious activity alerts where accounts show unusual withdrawals, deposits, changes in spending patterns, changes in passwords, and identity theft. EverSafe also enables subscribers to designate trusted advocates to receive these alerts, and can assist with creating a recovery plan. For more: www.EverSafe.com or call 1-888-575-3837. Monitoring is on a paid subscription basis, and customers of some brokerage firms can qualify for a discount, e.g. Fidelity customers.