Protecting seniors and other specified adults from financial exploitation



May 11, 2017

FINRA Rule 2165 is receiving more attention as the February 5, 2018 implementation time is about nine months away. Just as important is the amendment to Rule 4512, which also has a February 5, 2018 implementation date. Notice to members 11-17 describes the new rules.

At a high level, the new rule requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account (FINRA Rule 4512); and (2) permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief that these customers have been, are being, or will be subject to financial exploitation (FINRA 2165). To help the firm ensure their clients are not exploited, the trusted person will make the final decision regarding the account. The firm must make a reasonable effort to identify such person.

There are many tentacles to the new regulations and a comprehensive implementation plan is necessary to effectively input the rules. Below are four considerations to consider as firms prepare for these changes:

1. Onboarding/Account Opening

  • A new account opening process will need to be set up for clients over the age of 65 and persons over the age of 18 where the advisor believes the client may have a mental or physical impairment that renders the individual unable to protect his or her own interests
  • How will advisors determine who is impaired?
  • How will advisors and firms document that impairment?
  • What process will be in place to document the assessment and procedures that will be followed?
  • How will a trusted person be determined?

2. Process, Policies and Procedures

  • Processes must be established and policies and procedures written, communicated and consistently followed by all advisors and staff
    1. What will be required, and what will allow for subjectivity?
    2. What will be the procedure if a client is being exploited, but no trusted person exists?
    3. What criteria is needed for an advisor to notify their management team that there is a potential exploitation?
  • Processes and procedures will need to be tested (suggested October-December 2017) prior to February 2018

3. Record Keeping

Broker Dealers will be required to retain records relating to their obligations and actions under the rule

  • A process for updating books and records will need to be established
  • Ownership for retention must be clearly identified

4. Advisor and Leader Training

Broker Dealers will be required to develop and document training procedures

  • Training will need to be developed for internal and external support staff, leaders and advisors on how to detect exploitation and impairment. Specific guidelines will need to be established in how to work appropriately with vulnerable clients.

These rules are not easy to implement. Proactive planning is needed to ensure advisors are trained, the client experience is preserved and most importantly, the firm’s ability to implement the entire program by February 5, 2018.

With such sensitive topics as financial exploitation and impairment, firms must ensure that communications, implementation, feedback, and oversight are carefully and proactively planned.

This post was co-authored by Linda Wolfgram and Frank Kimball:

Linda Wolfgram

Linda WolfgramLinda Wolfgram is a Master Practitioner at the North Highland Company. Linda has a diverse and unique background with experience in strategic financial services consulting, global consulting and over two decades of financial services industry experience and expertise.

Frank Kimball

fkimballFrank is an Expert Practitioner with the North Highland Company. He has over 25 years of experience in the Financial Service Industry. He has held executive leadership positions in Retail Brokerage, Asset Management, and Corporate Trust as well a senior member of Corporate Strategy. He helped create an award winning value-add program providing ERISA advice and proactive tools to help Financial and Private Client advisors at wealth management firms to grow their retirement practice. He has developed and managed infrastructures r sales organizations providing necessary tools to grow sales and retain clients. His primary focus is in Wealth Management, Compliance, Risk Management and Trust.