FINRA Proposal to Protect Investors 65 or over from Exploitation

Older Investors Gain New Protections from Brokers

The past year has seen terrific focus on older investors. With America's most populous and wealthy generation headed for retirement, millions of Americans will need to rely on their retirement savings as they age. Unfortunately, as a disturbing report by the Obama Administration's Department of Labor uncovered, conflicts of interest among brokers and brokerage firms and the investors they are supposed to be looking out for costs retired Americans several billion dollars per year. 

A major cultural shift is underway in the finance industry, as the government and regulators try to crack down on inefficiencies and conflicts in the financial industry that drain America investment accounts. Some of those billions of lost dollars are the result of the lack of clearly aligned interests between financial advisors (who typically get paid on commission or fees) and retail investors (who earn return on investment and principal growth); and some of those billions are the result of outright fraud, misconduct, and scams. Regulators are eager to see both sources of wealth loss diminish, and they have launched numerous programs this year on both sides of the fiduciary relationship. They have fined and sanctioned brokerages who fail to match investors with suitable investments; and they have introduced programs and hotlines to help older retail investors protect their nest eggs.

Most recently, the financial industry regulatory authority (FINRA) announced that allow broker-dealers to temporarily block cash or securities outflows in accounts that suggested an older client was being taken advantage of. This new system of "red flags" is designed to give brokerages another level of internal protection against the predations of greedy brokers who are exploiting the trust or lack of sophistication of retail investors, and particularly older retail investors.

FINRA said the new proposal, which approved last week, would allow brokerage firms to place temporary holds on accounts of investors 65 or over when there is a reasonable believe of financial exploitation. The new rule would also apply to the accounts of investors 18 and over who have mental or physical impairments that leave them unable to protect their own interests.

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