A new Finra regulation designed to prevent financial exploitation of seniors will spur what could be delicate conversations between brokers and older clients.
The rule, which goes into effect on Feb. 5, requires that brokers make a reasonable effort to identify a trusted person who can be contacted if the broker is concerned that the client is suffering from diminished mental capacity or is the target of a scam.
The request for a trusted contact must be made at account openings for new clients and during account updates with existing clients.
The regulation also provides brokers with liability protection if they place a hold on disbursements from an account because they think their clients could be harmed.
If the client declines to provide a trusted contact, the broker does not have to keep pushing, according to a set of
frequently asked questions posted on the website of the Financial Industry Regulatory Authority Inc.
But that initial conversation could be tricky.
"We have to be real careful with that, especially with seniors, because it's a touchy subject," said Amy Daniels, an Edward Jones adviser in Searcy, Ark. "It's a simple question: Who do they trust? It may be the first time a financial adviser has asked that question."
Ms. Daniels has been gathering trusted contact information for two years. She's found that the discussion of what to do if the client declines is a gateway to a family conversation.
"That's when I really get into the what ifs, in the family meeting," she said.
RBC Wealth Management brokers also have been obtaining trusted contacts for a number of years. Angie O'Leary, RBC head of wealth planning, recommends that discussion be placed in a larger context.
Conduct "a wealth planning conversation with the client rather than just focusing on the regulatory requirement," Ms. O'Leary said. "Then they're having a richer conversation."
Wells Fargo Advisors has had a program in place since 2014 to protect older clients. The trusted contacts are a key part of the system, according to Ron Long, the firm's director of regulatory affairs and elder client initiatives.
"We use the trusted contact information as part of the escalation process to protect the client," Mr. Long said. "In the majority of cases, the trusted contact gets involved and helps resolve the situation. We are well above 50% where a trusted contact or a client or a combination of both are appreciative that we decided to step in."
The Finra rule gives brokers a safe harbor if they stop disbursements from a client's account. They can place an initial hold for 15 days and then extend it for another 10 days.
The Finra rule does not require that brokers report suspected elder abuse to regulators or other government agencies, but Joseph R.V. Romano, president of Romano Wealth Management in Evanston, Ill., said that's what they should do anyway during a disbursement hold.
"The 15 days is giving you the opportunity to escalate this to the proper authorities, like the Adult Protective Services in your state," said Mr. Romano, a member of the Finra board.
Mr. Romano, who has participated in industry conferences on senior exploitation, spoke about the Finra rule from his perspective as a firm owner, not on behalf of Finra or the board.
APS can investigate the suspected abuse.
"You're escalating this to an agency that is prepared to make that evaluation," Mr. Romano said.
At larger firms, such as Edward Jones and Wells Fargo Advisors, escalation means getting compliance or field office supervisors involved in the decision on whether to hold a disbursement.
As the Finra rule is going into effect,
several states have implemented or are considering a model elder-abuse rule drafted by the North American Securities Administrators Association. The NASAA regulation is similar to Finra's but requires that financial advisers report suspected abuse to authorities.
Mr. Long doesn't foresee conflicts between the rules.
"I think brokers can follow the Finra model and enhance it with whatever state rule may exist," he said.
The bigger challenge for brokers may be dealing with older clients who resent the idea that they have to prepare for the stage in life where they begin to decline.
Brokers' "interest in doing the right thing for their client and protecting their client will outweigh the concern about the client pushing back," Mr. Romano said.
