Further Protection for Good Samaritan Brokers: States and FINRA Continue the Push to Protect Senior Investors by Protecting Brokers Who Do the Right Thing

Following the passage of last year’s federal Senior Safe Act, several states moved to beef up protections for senior investors by permitting brokers to act without liability.

  • Rhode Island’s Senior Savings Protection Act allows brokers to “refuse a request for disbursement” from a senior’s accounts if the broker reasonably believes that the disbursement will result in the senior’s financial exploitation. Brokers will be exempt from any liability so long as they report the suspected financial exploitation to the Department of Elderly Affairs or to law enforcement.
  • New Hampshire’s nearly identical NH S 252 and Arizona’s Protecting Vulnerable Adults from Financial Exploitation Act will allow brokers to delay any disbursement “after initiating an internal review of the requested disbursement and suspected financial exploitation.”

Likewise, FINRA is in line with its 2019 exam priorities and its recently passed Rule 2165, which allowed brokers to temporarily hold assets for up to 25 days if a firm believes a third party is exploiting a senior. In addition, Rule 4512 requires firms to attempt to obtain the name and the contact information of a trusted individual a broker can reach out to if the broker suspects exploitation. Since then, FINRA has heard from firms that a period longer than 25 days may be required, and protection may be necessary “where a firm has a reasonable belief that the customer has an impairment, such as diminished capacity, that renders the individual unable to protect his or her own interests, irrespective of whether there is evidence that the customer is the victim of financial exploitation by a third party.”

In response, FINRA issued Regulatory Notice 19-27. There, specifically, FINRA sought to conduct “a retrospective review to assess the effectiveness and efficiency of its rules and administrative processes that help protect senior investors from financial exploitation.”  In the notice, FINRA explained that it is seeking a review to gauge the substance and application of its senior protections. In total, FINRA requested comments on 20 questions, including:

  • Has your firm identified any unintended consequences when placing or attempting to place a temporary hold on disbursement of funds or securities from an account under Rule 2165?
  • Should FINRA require additional disclosure or heightened supervision for any particular product or investment strategy that is marketed to senior investors?

The comment period ended on October 8, 2019.

Clearly, the protection of senior investors is a primary focus of the SEC and FINRA as well as of federal and state governments. It will not be surprising if additional states take up this torch.

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About the Author: Sandra D. Grannum

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense. She is co-chair of the Commercial Litigation Team.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has represented brokerage firms, banks, clearing firms, and associated persons in over 60 arbitrations before the NASD and FINRA which have been tried through award. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

About the Author: Edward J. Scarillo

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