Senior Investors and Trusted Contact Persons

Regulatory Obligations

FINRA Rule 4512(a)(1)(F) (Customer Account Information) requires firms, for each of their non-institutional customer accounts, to make a reasonable effort to obtain the name and contact information for a trusted contact person (TCP) age 18 or older. FINRA Rule 4512 also describes the circumstances in which firms and their associated persons are authorized to contact the TCP and disclose information about the customer account.

FINRA Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) requires a registered person to decline being named a beneficiary of a customer’s estate, executor or trustee, or to have a power of attorney for a customer unless certain conditions are met, including providing written notice to the firm and receiving approval. The rule requires the firm with which the registered person is associated, upon receiving required written notice from the registered person, to review and approve or disapprove the registered person assuming such status or acting in such capacity.

FINRA Rule 2165 (Financial Exploitation of Specified Adults) permits firms to place temporary holds on a disbursement of funds or securities and securities transactions when firms reasonably believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted, and requires firms to notify the TCP, if available, when placing temporary holds. 

Findings and Effective Practices

Findings

  • No Reasonable Attempt to Obtain TCP Information: Not making a reasonable attempt to obtain the name and contact information of a TCP for all non-institutional customers (e.g., seeking to obtain this information only from senior non-institutional customers, not requesting this information within the firm’s regularly scheduled 36-month customer account records update letter).
  • No Written Disclosures: Not providing a written disclosure explaining the circumstances under which the firm may contact a TCP when seeking to obtain TCP information (e.g., when a customer opens a new non-institutional account or when the firm updates an existing account’s information (in accordance with FINRA Rule 4512(b)).
  • No Documented Training: Relying on FINRA Rule 2165 but not developing and documenting training policies or programs reasonably designed to ensure associated persons comply with the requirements of the rule.
  • No Documented Internal Review: Relying on FINRA Rule 2165 but not retaining records that document the firm’s internal review underlying the decision to place a temporary hold on a disbursement or transaction.
  • Attempted Circumvention of FINRA Rule 3241: Registered persons attempting to circumvent the rule’s requirements by having customers name the registered person’s spouse or other family members as beneficiaries for customers’ accounts.

Protecting Vulnerable Adult and Senior Investors

Effective Practices

  • Customer Outreach: Engaging in communication campaigns on fraud awareness, hosting educational webinars and providing customers with other resources to educate them on the latest scams.
  • Firm Outreach: Hosting conferences or joining industry groups focused on protecting senior customers.
  • Emphasizing the Importance of TCP and Promoting Effective Practices: 
    • Emphasizing at the senior-management level on down the importance of collecting TCP information.
    • Using innovative practices, such as creating target goals for collecting TCP and internally publicizing results among branch offices or regions.
    • Promoting effective ways of asking for TCP information and seeking feedback from registered representatives and supervisors on techniques that they have successfully used that have not already been publicized across the organization.
    • Establishing a system that notifies registered representatives when accessing non-institutional customer accounts that do not have a TCP listed and reminds them to request that information from customers.
    • Providing guidance to registered representatives regarding contacting TCPs when the firm places a temporary hold.
  • Customer Account Tracking: Implementing a process to track whether customer accounts have designated TCPs, and then focusing outreach efforts on accounts that do not have TCPs.
  • Supervisory Procedures: When establishing procedures for FINRA Rule 2165 related to placing temporary holds, contemplate how the firm will ensure supervisory procedures and WSPs related to the identification, escalation and reporting of matters involving the financial exploitation of Specified Adults will be handled.
  • Escalation Process: Implementing and training registered representatives to use a comprehensive process to escalate issues relating to seniors, including but not limited to concerns about financial exploitation, diminished capacity or cognitive decline.
  • Senior Investor Specialists: Establishing specialized groups or appointing individuals to handle situations involving elder abuse or diminished capacity; contacting customers’ TCPs—as well as Adult Protective Services, regulators and law enforcement, when necessary—and guiding the development of practices focused on senior customers.
  • Training: Conducting training, for both front office and back office staff, on common financial and investment scams and the warning signs of potential (1) fraud or exploitation perpetrated on the customer or (2) diminished capacity.

Additional Resources

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