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Brokerage firms are now better equipped to help protect seniors and other investors who may be at risk of financial exploitation.
The Financial Industry Regulatory Authority has created two new rules that FINRA describes as “the first uniform, national standards to protect senior investors.” The changes went into effect in February.
Firms governed by FINRA are now:
- Required to make an effort to obtain the name and contact information of a trusted contact person for a customer’s account. FINRA says the trusted contact person “is intended to be a resource for firms in handling customer accounts, protecting assets and responding to possible financial exploitation of any vulnerable investors.”
- Permitted to put a temporary hold on outgoing funds or securities from a customer’s account if financial exploitation is suspected. The hold is designed to give firms time to investigate their suspicion — such as by contacting the customer or the customer’s trusted contact — or, if appropriate, law enforcement or adult protective services.
FINRA describes the second rule as “a critical measure” because of how hard it can be for investors to recover their assets once a firm has unwittingly released funds or securities to fraudsters.
While these changes are two steps in the right direction, it’s important to remember that only the types of firms overseen by FINRA are beholden to these rules.
FINRA is what’s known as a self-regulatory organization. It’s not a government agency but is authorized by Congress to oversee the brokerage industry — brokerage firms and their employees who are technically known as brokers or broker-dealers.
Basically, FINRA oversees firms and people who sell securities in the U.S. Some securities salespeople also describe themselves as financial advisers.
Resources for investors
You should be familiar with FINRA as the entity that provides two fantastic free resources to investors:
- BrokerCheck, a database detailed in stories like “How to Choose the Perfect Financial Adviser” and “Is Your Financial Adviser a Crook? Here’s How to Find Out“
- Fund Analyzer, a tool detailed in “Are You Paying Too Much in Investment Fees? Here’s One Way to Tell“
I’ve used both resources many times to vet financial advisers and mutual funds. I recommend that you get to know them, too.
What’s your take on FINRA’s new rules? Share your thoughts below or on Facebook.