On July 15, FINRA’s Investor page featured an article titled “Protecting Older Investors From Financial Exploitation,” signaling a renewed and strengthened focus on safeguarding senior investors—an issue FINRA has long prioritized, but is now elevating further in light of older Americans being one of the fastest-growing demographics and the increase in financial fraud targeted at senior investors.1
Although targeted at the investing public, this publication also sends a clear message to member firms: protecting older investors is not just encouraged—it is expected. The article outlines best practices and emphasizes rules that member firms may already be incorporating into their compliance frameworks.
Key Takeaways from the Publication and Related Regulatory Developments:
Trusted Contact Person (TCP)
FINRA reiterates the importance of investors designating a Trusted Contact Person (TCP). While a TCP cannot make account decisions or execute trades, their presence provides firms with an additional line of communication in cases of suspected financial exploitation or diminished capacity. Firms are reminded that:
- FINRA Rule 4512(a)(1)(F) requires firms to make a reasonable effort to obtain TCP information for each non-institutional account.
- FINRA Rule 4512 details permissible scenarios for contacting and disclosing information to the TCP.
Temporary Holds on Suspicious Transactions
FINRA Rule 2165 authorizes firms to place temporary holds on disbursements—and, since March 2022, on securities transactions—when there is a reasonable belief that financial exploitation is occurring or has been attempted. Key points include:
- Notification to the TCP (if one is available) is required when a temporary hold is placed.
- Holds should be supported by documented reasoning and internal escalation processes.
Conflicts of Interest and Senior Designations
FINRA Rule 3241 prohibits registered persons from being named a customer’s beneficiary, executor, trustee, or attorney-in-fact unless certain requirements are met—including firm notification and approval. This rule targets conflicts of interest and helps protect seniors from undue influence.
FINRA Senior Helpline
Since its 2015 launch, the FINRA Securities Helpline for Seniors has proven to be a valuable tool not only for guidance but as a reporting mechanism. Calls to the helpline have sparked numerous investigations, helping regulators uncover misconduct, exploitation, and systemic weaknesses.
Supervisory Focus on Senior Investors
FINRA exams consistently focus on senior-related topics, including:
- Suitability of securities sold to older investors.
- Training provided to representatives on elder abuse and diminished capacity.
- Use of senior designations in marketing and communications.
- Internal procedures for escalation, documentation, and complaint tracking.
Conference Insights: Training, Escalation, and Adult Protective Services (APS) Coordination
At the May 2024 FINRA Annual Conference, a panel discussion titled “Advances in Senior Investor Protection” highlighted the importance of:
- Representative training on identifying and responding to elder financial abuse.
- The importance of TCPs for senior investors or those with diminished capacity.
- Clear internal escalation and reporting protocols.
- Effective relationships with APS.
Critically, FINRA emphasized that reporting to APS is not always sufficient, as victims may fall outside APS’s jurisdiction. Suspicious Activity Reports (SARs) are also limited in scope—direct reporting and communication are essential. FINRA encourages firms to understand APS’s constraints and proactively manage collaboration.
A notable cross-border insight discussed at the conference comes from a November 2020 Ontario Securities Commission (OSC) study, which found that behavioral nudges—such as fraud prevalence statements, social proof language, and mandatory active choice—can increase TCP adoption.2
Considerations for Member Firms
Given the continued spotlight and evolving risks, member firms may reassess and consider, where necessary, enhancing their policies, procedures, and controls concerning senior investors. Firms may consider:
- Increasing outreach and education around TCPs.
- Implementing behavioral nudges to encourage TCP designation, such as those recommended by the OSC during account setup or annual reviews, such as:
- Educating customers on the prevalence of financial fraud, especially those initiatives targeting older investors.
- Referencing regulatory guidance that encourages designation of a TCP.
- Requiring customers to make an active choice, for example, by including a “check the box” option on new account forms to either appoint or decline to appoint a TCP.
- Enhancing registered representative training on red flags and reporting.
- Ensuring timely and complete documentation of suspected exploitation.
- Evaluating the effectiveness of communication with APS and law enforcement.
Senior investors represent one of the fastest-growing—and most vulnerable—demographics. FINRA’s sustained focus reflects a broader industry awareness of the unique considerations involved in serving this population.
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1 https://www.osc.ca/en/news-events/news/osc-research-demonstrates-how-industry-can-use-behavioural-insights-protect-older-investors
2 https://www.osc.ca/en/news-events/news/osc-research-demonstrates-how-industry-can-use-behavioural-insights-protect-older-investors
