FINRA’s Broader Commitment to Senior Investors
In addition to the Helpline, FINRA has consistently focused on addressing concerns relating to senior investors. Our efforts have included rulemaking to provide firms with tools to address financial exploitation of seniors, guidance in FINRA publications, reviews of senior investor protection programs in our examinations, enforcement actions and collaboration with other regulators, as well as research and education initiatives.
Rules and Regulatory Framework
In response to growing risks of senior financial exploitation, in 2017, FINRA amended FINRA Rule 4512 (Customer Account Information) and adopted FINRA Rule 2165 (Financial Exploitation of Specified Adults) (collectively referred to herein as the FINRA Senior Exploitation Rules) to create national standards that give member firms tools to address suspected financial exploitation of senior investors and other vulnerable adults.10 Over the past decade, FINRA issued a number of Regulatory Notices emphasizing firms’ obligations to senior investors and providing guidance on how to fulfill those obligations.11 In addition, FINRA is currently conducting a retrospective review to assess the effectiveness and efficiency of our rules and administrative processes that help protect senior investors from financial exploitation.12 Section IV of this report provides a comprehensive overview of FINRA Senior Exploitation Rules, as well as our retrospective rule review.
Examination, Oversight and Enforcement
FINRA’s Risk Monitoring and Examination Programs have consistently focused on risks relating to senior investors in our reviews of firms’ compliance programs. In particular, senior investor issues have been an examination priority in every FINRA annual priorities letter since 2014. As part of firms' exams, FINRA may review how firm controls protect senior investors and assess their compliance with regulatory obligations. Moreover, the fact that FINRA identifies senior investor protection as a priority may help firms concentrate their attention on their policies and procedures relating to senior investors.
Where appropriate, FINRA also brings disciplinary action against firms or registered representatives for misconduct against senior investors.
FINRA Enforcement Bars Registered Representative Who Cheated Senior Investor Out of $9 million by Churning Account
FINRA barred two registered representatives for their respective roles in churning accounts belonging to a 79-year-old senior investor who suffered from severe cognitive impairment.13 FINRA found that one of the registered representatives, as the broker of record, used her romantic relationship with the senior investor to exploit him where the two registered representatives effected more than 2,800 trades in his accounts, generating approximately $9 million in commissions from September 2011 through June 2012. FINRA found that over half of these transactions involved short-term trading in long-maturity bonds, including municipal bonds, intended for customers with long-term investment horizons. FINRA also found that one of the registered representatives, who entered most of the day-to-day trades in the senior investor’s account, exercised discretion without written authorization.
Helpline Helps Enforcement Stop Registered Representative who Stole Approximately $200,000 to Purchase Two New York Apartments in His Name
Helpline staff assisted FINRA Enforcement, which found that the registered representative converted approximately $200,000 from an elderly and legally blind senior investor, coerced him to open a joint account at a non-affiliated bank and used those funds to purchase two apartments in the registered representative’s name by taking advantage of the investor’s poor eyesight and inability to read documents.14 The registered representative maintained sole ownership of both apartments, including the investor’s primary residence, and even rented the second apartment to tenants and collected and retained the rent. FINRA found that the registered representative violated FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) and barred him from the industry.
Collaboration with Other Regulators and Organizations
FINRA works closely with the SEC, the NASAA, state securities regulators, state APS, and the National Adult Protective Services Association (NAPSA) on approaches to senior investor protection. In May 2019, FINRA, the SEC and NASAA issued a Senior Safe Act Fact Sheet designed to raise firms’, investment advisers’ and transfer agents’ awareness about the Act, its immunity provisions and additional resources relating to senior investors. In October 2019, FINRA and state regulators participated in the SEC Roundtable on Combating Elder Investor Fraud, joined the SEC at the Society for Corporate Governance Southeastern Securities Conference, and collaborated with the SEC’s Miami office on several outreach events in local communities. In addition, FINRA collaborated with NAPSA to prepare and update the National Guidelines for Financial Institutions: Working Together to Protect Older Persons from Financial Abuse. FINRA also collaborates with state regulators in providing training and addressing potential exploitation of senior and vulnerable adult investors. Moreover, FINRA regularly collaborates with these and other groups on various policy and rulemaking initiatives, as well as investigations and enforcement matters, involving seniors.
Research and Education
FINRA and, in particular, the FINRA Investor Education Foundation (FINRA Foundation), are conducting and disseminating research on senior investors and financial fraud15 and educating consumers about risks facing senior investors,16 including issues observed by the Helpline staff and other senior investor protection topics included in Appendix 1 to this report.17
In addition, we are engaging with national, state and grassroots partners to develop and distribute fraud prevention resources to consumers and providing training for law enforcement professionals, victim advocates and other intermediaries on the front lines fighting financial fraud. For example, since 2012, the FINRA Foundation has partnered with the National White Collar Crime Center to train over 2,150 law enforcement officials representing over 900 federal, state and local agencies in 38 different states on how to detect, prevent and respond to investment fraud. The Foundation regularly invites the SEC and the applicable state securities regulator to participate in these trainings.
Similarly, the FINRA Foundation has collaborated with the National Center for Victims of Crime to train more than 6,200 victim advocates (such as adult protective service workers, social workers and legal aid staff) to better assist individuals who have been victimized by investment and other financial frauds. Through this ongoing partnership, the FINRA Foundation has also distributed nearly 60,000 instructional guides.18 Over the same period, the FINRA Foundation has conducted outreach to consumers and supported Fraud Fighter Call Centers—operated by the AARP, the FINRA Foundation and the National Telemarketing Victim Call Center—in providing fraud detection and avoidance tips to more than 1.5 million Americans. FINRA also engages with staff of the Senate Special Committee on Aging to share perspectives on scams targeting seniors and potential resources for victims of fraud.
Most recently, in November 2019, FINRA held a Senior Investor Protection Conference to address issues relating to financial exploitation, diminished capacity, suitability, sales practices, scams, legal requirements and regulatory developments with speakers addressing federal, state, industry and medical perspectives. In addition, in October 2019, the FINRA Foundation and the Stanford Center on Longevity co-hosted a conference to share research, information and innovations that could help prevent financial fraud, including emerging neuroscience research on the impact of aging on vulnerability.
Buildathon Challenges Firms and Students to Protect Senior Investors
On November 8, 2019, FINRA, Deloitte Touche Tohmatsu Limited (Deloitte) and the MIT Student Fintech Club held a Buildathon—a hackathon-style competition—that challenged teams made up of students and attendees from financial firms to work together to develop solutions that would strengthen investor protection in four areas, including one focusing on senior investors. This senior-related challenge asked teams to develop tools to help firms identify securities that might pose risks to senior investors. The Buildathon was the first event of its kind to bring firm representatives, students and federal and state regulators together to develop technology-based solutions to investor protection challenges.
10 See Regulatory Notice 17-11 (SEC Approves Rules Relating to Financial Exploitation of Seniors).
11 See, e.g., Regulatory Notice 07-43 (FINRA Reminds Firms of Their Obligations Relating to Senior investors and Highlights Industry Practices to Serve These Customers); Regulatory Notice 09-42 (FINRA Reminds Firms of Their Obligations With Variable Life Settlement Activities); Regulatory Notice 11-52 (FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations); Regulatory Notice 16-12 (FINRA Provides Guidance on Firm Responsibilities for Sales of Pension Income Stream Products); and Regulatory Notice 17-11 (SEC Approves Rules Relating to Financial Exploitation of Seniors).
12 See Regulatory Notice 19-27 (FINRA Requests Comment on Rules and Issues Relating to Senior Investors).
13 See Ami Kathryn Forte and Charles Joseph Lawrence, Order Accepting Offer of Settlement, Case ID 2016049321302 (Oct. 21, 2019).
14 See Jaime R. Rodriguez, Letter of Acceptance, Waiver and Consent, Case ID 2016051772601 (Aug. 28, 2017).
15 See, e.g., The State of U.S. Financial Capability: The 2018 National Financial Capability Study; Exposed to Scams: What Separated Victims from Non-Victims?; Financial Fraud and Fraud Susceptibility In The United States.
16 See, e.g., resources on the FINRA Senior Investors Topic Page; articles such as Protecting Seniors from Financial Exploitation; and investor alerts such as Seniors Beware: What You Should Know About Life Settlements.
17 See, e.g., investor alerts on order types, transfer on death accounts, binary options and related scams, required minimum distributions and powers of attorney.
18 See, e.g., Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud.