Is FINRA's Proposed Rule for Preventing Elder Abuse All Wrong?
Finra, the SEC and NASAA have all been in discussion for years about increasing protection of senior investors. There is a move to create such protection by requiring that financial professionals report suspected abuse to Adult Protective Services and utilize methods to freeze accounts and notify a trusted other when abuse appears to be going on. The proposed rules have a common goal, and different methodologies.
What’s Right With The Proposed Finra Rule
Financial professionals are in a unique position to know their clients. They may have relationships that stretch over years, allowing the advisors and brokers to understand the client as well as seeing changes related to aging, particularly cognitive decline and diminished capacity. The potential discomfort of reporting is far outweighed by the benefits of reporting. Reporting to APS does not automatically solve every case of financial abuse of elders. It is at least a start to the process of investigation to find out if an aging person is being victimized. It will not stop a willing victim who is competent from giving away money to a relative who wants to take advantage of them. It can stop a thief who is preying on an incompetent person. That is what is most important. Furthermore, reporting can be done anonymously.
What’s Wrong With The Rule?
No financial professional should have to report abuse without at least some basic orientation to what to look for and how to understand the red flags of diminished capacity and financial elder abuse. The regulators do not offer that orientation or instruction in these areas. (Here’s one accredited CE course that you can find at our site).
The regulators have underestimated how inadequate the average, non-expert, non-medical person may feel in being required to report elder abuse of a client. Learning what to look for and how to spot abuse is not so difficult, but everyone who may be required to report it should be required to get basic instruction first . They should not just throw a rule at you without teaching you how to work with it.
Further, the proposed rules assume that if one freezes an account or holds all transactions for a couple of weeks or so, that will be enough time to get things straightened out. As a lawyer, I can assure you that is highly unlikely. Let’s look at an example from an actual case.
“Luke” age 93 lives in a nursing home and is very dependent for daily care. He has a ne’er-do-well son, “Joey’ who has always gotten money out of his dad, even with a drug habit, spotty work history and numerous misdeeds. Joey’s sister, Jane, was appointed long ago as Dad’s agent on the power of attorney and she is the successor trustee on Luke’s trust. The broker for Luke knows his client and the family history. He knows that Jane wants to keep her Dad safe.
Joey comes for a visit from out of state to see his father. He takes Luke out of the nursing home for a visit to Dad’s broker and Luke says he wants a cashier’s check for $50,000 out of the cash management account. He also wants a debit card for that account which has a lot of Luke’s assets in it. Broker is very uncomfortable. He drags his feet. He feels bound by privacy laws not to call Jane, even though he knows abuse is happening. Finally he sends Luke the check which of course goes immediately to Joey.
The broker finally feels bad enough to call Jane, “on the QT” and tells her what is going on. Jane got advice from me and immediately took steps to have her father removed as trustee from his accounts. She had to fly to see Luke, living in another state, set up two appointments with two doctors and take Luke to the doctors. Eventually Luke was evaluated so that doctors could report that he was no longer competent to manage his financial affairs. Those two doctor reports then went to the estate lawyer. The lawyer completed the transition of Luke out of power to Jane, successor trustee, appointed when Luke was fully competent, long ago.
This process took three months.
Taking the next step when you see financial abuse, as in Luke’s case should not have to be “on the QT”. Instead, everyone should have a clear path to follow, permission and direction from legal and compliance about escalation, and written, reasonable actions to take. All of this works best within the overall mission of your organization to keep aging clients safer. The proposed rule can certainly work and we support it. But it needs some tweaking. And it will be successful if brokers get more help before it becomes a mandate.
Most Read IRIS Articles of the Week: April 17-21
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017
Click the headline to read the full article. Enjoy!
Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti
The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside
Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard
How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel
According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild
I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing
Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini
Your reputation is who you are and how you show up, Monday to Monday®. Many of us take our image and reputation for granted. Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke
The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier
Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter
Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond
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