FPA MN’s 2016 Advocacy Day is just around the corner. We hope that you will consider joining us in St. Paul in late February/early March. If you feel there a professional issue that you think FPA MN should discuss with our state legislators, please contact Scott Nelson or Keith Loveland of the Professional Issues Committee.
Dealing with aging is an essential part of financial planning. We help our clients prepare for their golden years by overseeing their retirement portfolios and making sure they have the documents in place for an orderly disposition of their assets after their death among other things. For all these efforts, we have been woefully deficient in attending to our client’s financial vulnerability to exploitation by a family member, friend, caregiver or unfortunately another financial professional.
FINRA is taking steps to counter that situation with a couple proposals on which the comment period just ended. The first proposal is an amendment to Rule 4512 (Customer Account Information) that would establish the requirement of asking for contact information of a trusted individual when opening a new account for a person over the age of 65 or any one over 18 that has an impairment limiting sound judgement. By providing contact information for a trusted individual, the client is authorizing the investment representative to discuss with the trusted individual information about the client’s accounts, health status and the identity of others with the authority to handle the client’s financial matters.Clients will not be required to provide the information and the firm will not be held responsible if they decline.
FINRA is also proposing Rule 2165 that would permit “qualified” persons to place temporary holds on the disbursements of funds or securities in situations where they reasonably believe that financial exploitation is occurring. Again, this would pertain to clients over age 65 or anyone over age 18 whom the investment firm believes is impaired such that they cannot look out for their own best interests. The proposal is for a 10 day holding period while the reason for the transfer is investigated.
Obviously, these are important improvements to the current rules that have previously handcuffed professionals from intervening in all but the most blatant examples of exploitation. These rules will not by themselves put a stop to elder exploitation though. True success relies on firms looking at this as an opportunity to create value for the client rather than just an additional compliance hoop to jump through when opening an account. Asking for the contact information of a trusted individual can be the opening of a discussion on how the firm wants to go the extra step in safeguarding the client’s assets as they get older.
Rule 2165 on the other hand could be viewed as a hot potato. There are obvious cases of exploitation when a client suddenly withdraws 10 times more than usual but many situations will not be as black and white. It will be a tough call to hold up a transfer when being wrong about the situation could result in an angry client going elsewhere. The investment industry should look to the banking industry which has had the power to stop withdrawals for some time. Many banks have programs to train customer service personnel to detect the signs of diminished mental capacity and exploitation.
NASAA for its part, is working on a more expansive approach that will additionally require broker-dealers and advisors to report what they reasonably believe to be exploitation to Adult Protective Services and their state regulator as well as provide to authorities any records deemed relevant to the investigation.
It is surprising that it has taken this long for the investment industry to act given that a significant proportion of every financial planner’s clients are in their retirement years. In 2010, 13% of Americans were over age 65 and that figure is expected to exceed 20% by 2030 so incidents of exploitation will likely grow as well. While FINRA’s proposals are necessary in stopping blatant acts, it is still up to the financial planner to develop their relationship with the client to have the latitude to help them when they can no longer help themselves.