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FINRA Proposes Enhancements to Protect Senior Investors from Financial Harm

On April 16, 2020, the Financial Industry Regulatory Authority (FINRA) issued an alert which stated that “there is no higher priority for FINRA than protecting senior investors from financial exploitation. Thus, every year we bring dozens of enforcement actions against brokers who harm senior investors, either through fraud schemes, conversion, churning of accounts, or otherwise.”

In this alert, FINRA highlighted “one pattern we have seen with increasing frequency in which certain brokers have exploited their senior customers” – brokers who are “appointed beneficiaries, executors or trustees, or holding a similar position for customers.”

Being named a customer’s beneficiary, executor or trustee, or holding a power of attorney or a similar position for or on behalf of a customer may present significant conflicts of interest for investment professionals. Conflicts of interest can take many forms and can result in registered persons taking advantage of being named beneficiaries or holding positions of trust for personal monetary gain. Problematic arrangements may not become known to the member firm or customer’s beneficiaries or surviving family members for years. Senior investors who are isolated or suffering from cognitive decline are particularly vulnerable to harm.

As noted by FINRA, “at best these arrangements present potential conflicts of interest, at worst they provide the opportunity for massive financial exploitation of (often) vulnerable senior customers.”

To counter this increasing concern, FINRA has proposed a new rule limiting the circumstances under which a broker may be named a customer’s beneficiary, executor, or trustee or hold a power of attorney for a customer. If approved, this rule will create a new national standard to better protect investors.