Protecting seniors from financial exploitation requires a collaborative effort between the government and financial experts. In general, securities brokerage firms and their stockbroker employees have a fiduciary duty to their customers.
FINRA rules also establish a broker-dealer and stockbroker’s responsibility to protect seniors from financial exploitation by others. Unfortunately, the financial exploitation of seniors is a growing problem.
If you or a family member believes you were taken advantage of by your stockbroker, investment advisor or another financial professional then you need to speak with a skilled investment fraud attorney right away.
Based in Boca Raton, the legal team at the Law Offices of Robert Wayne Pearce, P.A., has years of experience representing clients for various types of investment, securities, and commodities fraud. We have handled hundreds of JAMS, FINRA, and AAA securities mediations and arbitrations for clients across the country and even some international clients.
Financial Exploitation Is Elder Abuse
According to the National Adult Protective Services Association, financial exploitation is a type of elder abuse on the rise. It covers the abuse of seniors and adults who have disabilities. This type of abuse usually involves trusted people in a person’s life, such as stockbrokers, investment advisors, other financial professionals, trustees, guardians, caretakers, neighbors, family members, and friends.
This abuse happens because many seniors simply cannot protect themselves any longer. They are more trusting and relying on others. They are incapable of detecting fraudulent schemes. It is difficult for them to understand the nature, mechanics or risks of investments being offered and sold to them.
Many cannot even read or comprehend the account statements or confirmations sent to them. So they allow others to manage their financial affairs and some of those people they trust and rely upon financially exploit them.
There are numerous types of investment fraud perpetrated upon seniors. Some of the most common abuses and scams by stockbrokers, investment advisors and other financial professionals include:
- Getting seniors to allow fraudsters access to and/or management of their bank and/or brokerage accounts;
- Telling seniors to write personal checks to stockbrokers, investment advisors and other financial professionals to supposedly make investments not available through the brokerage firm;
- Taking money from seniors in exchange for worthless promissory notes or notes the fraudster has no intention of ever re-paying to the senior;
- The offer and sale of unsuitable complex structured products, alternative and non-conventional investments for the high commissions paid on those investments;
- Advising seniors to take out reverse mortgages or equity lines and use the proceeds to trade securities;
- Other scams that pressure a senior to use the equity from their reverse mortgage or equity line (or other liquid assets) to purchase an expensive variable universal life insurance policy, variable annuity, or indexed annuity with high commissions, high surrender fees, expensive riders and that may not even mature until the senior is around 90 or 100 years old;
- Investments or securities schemes, such as Ponzi or pyramid schemes, promising unrealistic returns;
- Investments involving an unlicensed dealer.
Victims of financial exploitation can experience all the same effects as someone who has endured another type of abuse, including depression, loss of trust, and feelings of shame.
Financial Industry Regulatory Authority (FINRA)
Recent rule changes to the Financial Industry Regulatory Authority (FINRA) went into effect in February 2018. These significant rule changes help establish additional protections for senior citizens. The two notable changes are FINRA Rules 2165 and 4512.
FINRA Rule 2165
The SEC adopted new FINRA Rule 2165, which is the Financial Exploitation of “Specified Adults.” This rule will permit members to place a temporary hold on securities or disbursements of funds from an account when there is suspected financial exploitation. If a financial broker reasonably suspects that there is financial exploitation, then they can withhold disbursement.
However, the rule does not create an obligation to stop the disbursement. Instead, it provides the right for brokers to do so. Stockbrokers should be proactive and look for potential abuse, so they can stop it early on, helping protect unsuspecting senior investors from becoming victims.
Rule 2165 defines specified adults as particular investors who are most at risk for financial exploitation. That includes the following people:
- Someone who is 65 years of age or older; and
- Someone who is 18 and older that the broker has reason to believe has a physical or mental impairment that renders the investor unable to protect their own interests adequately.
Brokers also have to know what the rule defines as financial exploitation. One example is the unauthorized or wrongful withholding, taking, use, or appropriation of a specified adult’s securities or funds. Financial exploitation can also be any act or omission made through someone’s guardianship, power of attorney, or any other authority with the purpose of:
- Converting the specified adult’s assets, money, or property; or
- Obtaining control of the specified adult’s property, money, or assets through the use of intimidation, deception, or undue influence.
Rule 2165 allows a broker to put a temporary hold on suspicious disbursements but not on ones that do not appear to be related to the financial exploitation of seniors. The rule does not apply to transactions in securities, such as a customer’s order to sell their share of stocks. But it could apply to a request by the investor to disburse shares out of their account.
FINRA Rule 4512
The SEC also adopted FINRA Rule 4152, which concerns customer account information. Under this amended rule, members must make reasonable efforts to obtain a name and contact information for an investor’s trusted contact person on their account.
Investors should have a trusted contact listed whom the stockbroker can reach out to and disclose pertinent information about an account. They can also disclose health status and even ask about the client’s whereabouts if the broker cannot reach them directly.
Stockbrokers can get a trusted contact name when opening the account or when updating information for accounts established before the effective date of Rule 4512. The amendment requires the broker to disclose in writing or electronic documentation that the stockbroker or an associate can contact the investor’s trusted contact person and disclose any necessary information about the account in connection with suspected financial exploitation.
A trusted contact can be a valuable resource in many situations, not just when financial exploitation is suspected. If an investor has health problems and the broker cannot reach them, the trusted contact can provide insight.
As an investor age, there may be signs of dementia or other diminished capacities. A broker can speak with the trusted contact to discuss current issues before deciding to put a hold on a disbursement under Rule 2165.
Senior Safe Act
The Senior Safe Act (12 U.S.C. Section 3423) extends liability immunity for some people who are employed at financial institutions and disclose suspected activity under rules such as FINRA.
If someone acts in good faith and with reasonable care to disclose the suspected financial exploitation to law enforcement or regulatory agency, they could have immunity from liability. There are certain conditions where this immunity will extend to a financial institution, such as an investment advisory firm, insurance agency or company, transfer agent, broker-dealer, or bank.
This immunity protects the broker from legal exposure when they share a senior’s personal information with other regulatory agencies or a state’s adult protective services agency.
Other Ways to Protect Seniors from Financial Exploitation
The SEC protects against the financial exploitation of seniors, but there are other legal protections as well. Some case precedent and state laws also set forth duties for brokers. For example, Florida has several laws on the books that could apply to these situations.
Stockbrokers are supposed to protect senior investors from possible scams, but the truth is that some brokers may be the ones initiating them. If a broker makes an unsuitable investment suggestion to defraud the investor, they could be held accountable.
Contact a Florida Securities Fraud Attorney
If you lost substantial value in your investment accounts due to suspected broker misconduct, you might have the legal right to pursue a claim against the responsible parties. However, these are incredibly complex cases, which is why you need an experienced Florida securities fraud attorney who can help.
The legal team at the Law Offices of Robert Wayne Pearce, P.A, has over 40 years of experience assisting victims to recover losses from their investment accounts due to broker misconduct or negligence.
We represent clients in Florida and throughout the country. To learn more about how we can help you pursue compensation for your investment losses, please call our office at 800-732-2889 or contact us online to schedule a free consultation.
Let us put our skills and years of experience to work for you. We are committed to helping you hold all accountable parties responsible.
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