Elder Financial Abuse Problems to be Targeted by FINRA Guidance

The independent regulatory authority that oversees the financial industry is currently crafting new guidance on how to deal with situations where elderly investors may be suffering from dementia or other mental deficiencies that make them prone to fraud or elder financial abuse.. 

According to a story by Reuters, the chairman and chief executive of the Financial Industry Regulatory Authority (FINRA), Richard Ketchum, announced that the creation of new guidance was under way during a Reuters Wealth Management Summit.

Ketchum told the news service that FINRA is crafting the guidance with help from the U.S. Securities and Exchange Commission (SEC), providing for the delay of certain transactions, while at the same time obeying laws to act promptly on client requests.

At issue are what financial firms should do when presented with transactions by clients with dementia, or who may be being taken advantage of by a caregiver, that could negatively affect their financial status. If firms fail to promptly act on the client’s request, it could lead to financial ruin or perpetuate ongoing abuse and exploitation. However, if they delay, they may not be able to negotiate the best prices for their clients, or might block or delay a legitimate financial transaction, opening themselves up to lawsuits and potentially regulatory action.

The coming guidance, which is non-binding, would instruct the firms on what actions they can take which FINRA and the SEC would find acceptable. Additionally, those that adhere to the guidance would find some legal cover in case of an erroneous decision on whether or not to delay those types of transactions.

Ketchum gave no release date for the guidance.

FINRA is a non-governmental agency that acts as a self-regulatory agency for investment firms. It was created in July 2007, as a successor to the National Association of Securities Dealers, handling all disputes between investors and stockbrokers or other financial firms. FINRA arbitrators resolve stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

The guidance comes following a research report released by FINRA in March which found that investment fraud cases often result in non-financial harm to clients in addition to the obvious financial problems.

According to the findings, 65% of financial fraud victims reported experiencing at least one type of non-financial cost, with half of those citing stress. Thirty-eight percent of victims reported suffering sleeping problems, and 35 reported having bouts of depression. The larger the amount of money lost to fraud, the greater the number of non-financial problems likely to be suffered by the victim, according to the report.

The victims also suffered other financial costs that were indirectly related to their losses, such as late fees, legal costs, overdraft charges and similar.