Is FINRA's Proposed Rule for Preventing Elder Abuse All Wrong?

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.

Dr. Mikol Davis. Ed.D
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Dr. Mikol Davis, Ed.D, is a licensed clinical psychologist specializing in geriatrics and the emotional challenges of aging. He has been a mental health provider for 40 years, ... Click for full bio

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