New FINRA Rules to Combat Financial Exploitation of Seniors go Effective February 2018

Jan. 10, 2018

Financial exploitation of senior citizens occurs when a family member, caregiver, friend, or stranger fraudulently or illegally uses funds, belongings, or property belonging to an elderly person. In 2011, the Metlife Mature Market Institute estimated that seniors lose nearly $3 billion a year through financial abuse and fraud. True Link Financial issued a report in 2015 increasing that number to nearly $36 billion, reasoning that many instances of abuse go unreported. While the exact dollar amount of senior exploitation is unknown, the financial abuse of hundreds of thousands of American seniors is a grave and disturbing problem.


The Financial Industry Regulatory Authority (FINRA) is taking steps to address the issue of elder financial exploitation by implementing two rules effective February 5, 2018. FINRA Rule 2165: “Financial Exploitation of Specified Adults” is a completely new rule, while FINRA Rule 4512: “Customer Account Information” is an existing rule that has been amended.


Rule 2165: “Financial Exploitation of Specified Adults.” Rule 2165 implements a new requirement for when a broker-dealer has reason to believe the client will be or is a victim of financial exploitation. When the broker-dealer has such a belief, he or she is allowed to put a temporary hold on the disbursement of the client’s funds if the client is a “specified adult.” A specified adult is a person who is more susceptible to financial exploitation and is defined as a person who is either (1) age 65 and older or (2) age 18 and older who the broker-dealer reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.


Rule 2165 will also require broker-dealers relying on the Rule to:

  1. Establish and maintain written supervisory procedures for complying with Rule 2165;

  2. Develop reasonably designed polices to train associated persons, ensuring compliance with Rule 2165; and

  3. Retain documentation related to compliance with Rule 2165;


Rule 4512: “Customer Account Information.” The amended Rule 4512 will now require broker-dealers to request and maintain the name and contact information of a “trusted contact person” for each of their clients. However, if the client choses not to provide a name of a trusted contact person, the broker-dealer may still open an account or otherwise continue serving the client.


The trusted contact person serves as a second set of eyes and ears and as a resource as related to the client’s account, according to FINRA’s Regulatory Notice 17-11. The trusted contact may be relied upon in a range of situations, including – but not limited to – verifying client contact information, discussing the health status of the client, or addressing possible financial exploitation. A trusted contact person acts as a protective mechanism if the client becomes incompetent or otherwise vulnerable, especially to financial exploitation.


The broker-dealer can contact the trusted contact person for information regarding the customer and the customer account. The broker-dealer must provide the client with written disclosure of the request for information from the trusted contact person.


See FINRA’s FAQs on these rule changes for more information.

Written By:
Brian Edstrom

Brian Edstrom is a Shareholder and Attorney at Avisen Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having spent several years working for federal and state regulators in Washington D.C. and Saint Paul, MN before entering private practice. 

Emilee Walters is our first Avisen Legal Fellow alum and a third-year law student at the St. Thomas School of Law. Emilee is exploring a legal career in business law.

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