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FINRA’s Investor Protection Initiatives for Senior Investors

On April 30, 2020, the Financial Industry Regulatory Authority (FINRA) issued an a report (“Protecting Senior Investors 2015-2020, An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices”), which highlighted the fact that seniors, who “make up an increasingly large share of the American population and hold higher levels of wealth than other generations,” are “an attractive target for financial exploitation, with evidence suggesting that such exploitation has been increasing in terms of both scope and magnitude.”

This report further noted the reality that “while seniors sometimes fall victim to financial exploitation by strangers, they are often exploited by individuals they know and trust”, such as family members, caregivers and financial professionals, and that “senior investors who are isolated or suffering from cognitive decline may be particularly vulnerable to harm.”

FINRA has “maintained a longstanding commitment to protecting senior investors and continues to work to address risks facing this investor population” as part of its regulatory mission.

This commitment is particularly noteworthy when it comes to suitability – the obligation to ensure that an investment is appropriate for an investor in view of his or her investment objectives, risk tolerance and investment profile.

Among the factors that FINRA advises firms should consider when it comes to suitability issues in the context of senior investors are “providing disclosure of additional risks or limiting products being marketed to senior investors; having a clear, up-to-date understanding of investment objectives as a customer nears or begins retirement (e.g., importance of generating income, preserving capital or accumulating assets for heirs); understanding a senior customer’s sources of income (e.g., whether the customer is living on a fixed income or anticipates doing so in the future); gaining an awareness of how much income a senior customer may need to meet fixed or anticipated expenses; asking about health care insurance and whether the customer may need to rely on investment assets for anticipated or unanticipated health costs; addressing additional concerns for senior investors, such as shortened time horizons, potentially decreased risk tolerance and additional significant liquidity needs; and if applicable, considering potential cognitive decline when making recommendations to senior investors, and making additional efforts to explain the features and risks of products.”