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New SEC Rules to Protect Against the Financial Exploitation of Senior Citizens

Published March 1, 2022

By Joel Krooks, Esq.

Sadly, the financial exploitation of senior citizens is a growing problem in the United States. As a result of the growing problem, the SEC has approved new rules relating to the financial exploitation of seniors (Rule 2165 and amendments to Rule 4512). The new rules provide members of the Financial Industry Regulatory Authority (FINRA) with a way to respond to situations in which they have a reasonable basis to believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted. A FINRA member is any broker or dealer admitted to membership in the Financial Industry Regulator Authority.

Amendments to Rule 4512

The amendment to Rule 4512 requires FINRA members to make reasonable efforts to obtain the contact information for a trusted person when opening a customer’s account or when updating account information of an existing account. The purpose of the trusted contact person is to be a resource to the FINRA member. A FINRA member may elect to notify the trusted contact of suspicious activity regarding an individual’s account. In addition, the FINRA member may reach out to a trusted contact person if it suspects the customer may be suffering from cognitive impairments. This amendment allows for another person to assist in the case of suspicious activity in an account. This amendment provides another avenue for FINRA members to assist their clients if financial exploitation is suspected.

Rule 2165

Rule 2165 states that a FINRA member who reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted can place a temporary hold on the disbursement of funds or securities from the account of a specified adult customer. A specified adult covers investors who are particularly susceptible to financial exploitation. A specified adult is a natural person aged 65 and older or a natural person aged 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests. If a temporary hold is placed, then an internal review of the facts and circumstances needs to be immediately initiated.

Power of Attorney

The new rules were put in place to further protect the elderly. Having a Power of Attorney is another important document that can help protect an individual from financial exploitation. An agent under a POA, can monitor a financial account to ensure that an individual is not being taken advantage of.

Revocable Trusts

Furthermore, having a Revocable Trust in place can help with the transition when an individual becomes incapacitated. Typically, Revocable Trusts have a trigger provision that allows an appointed successor Trustee to act when the current Trustee is incapacitated. The successor trustee can then step in and protect the assets against financial exploitation. We at Littman Krooks can assist you with having a valid Power of Attorney, Revocable Trust and with protecting an individual against financial exploitation.

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