Quick Answer
Firms may place a temporary hold on a disbursement or securities transaction for a specified adult (65+, or 18+ with an impairment) when they reasonably suspect exploitation. The hold runs 15 business days, extendable to 25 on internal review, and to 55 if reported to a state authority or court. Firms must also try to obtain a trusted contact person.
The financial-exploitation hold rule gives broker-dealers a specific tool to intervene without freezing the whole account. The exam tests the duration ladder precisely, so pin down which event triggers each extension before memorizing the day counts.
What Is a Temporary Hold on Disbursements?
- The financial-exploitation hold rule permits a member firm to place a temporary hold on a disbursement of funds or securities (and on securities transactions) from the account of a specified adult when financial exploitation is reasonably suspected
- This was the first uniform national standard for addressing suspected financial exploitation in brokerage accounts
Who Is a Specified Adult?
| Category | Definition |
|---|---|
| Senior investor | A customer who is age 65 or older |
| Impaired adult | A customer age 18 or older with a mental or physical impairment that renders them unable to protect their own interests |
Requirements for Placing a Hold
- The firm must have a reasonable belief that financial exploitation has occurred, is occurring, has been attempted, or will be attempted
- The person authorizing the hold must be an associated person serving in a supervisory, compliance, or legal capacity
- The firm's written supervisory procedures must identify the titles of persons authorized to place, terminate, or extend holds
Duration of the Hold
| Phase | Duration |
|---|---|
| Initial hold | Up to 15 business days |
| Standard extension | Up to 10 additional business days (25 business days total) |
| Further extension | Up to 30 additional business days if the matter has been reported to a state regulator, agency, or court of competent jurisdiction (up to 55 business days total) |
- The standard 10-business-day extension is available if the firm's internal review of the facts continues to support its reasonable belief of exploitation (a state regulator, agency, or court may otherwise terminate or extend the hold). Reporting to a state regulator, agency, or court is required only for the further 30-business-day extension
- The additional 30-business-day extension requires both conditions: the firm's internal review must still support its reasonable belief, and the firm must have reported or provided notice to a state regulator, agency, or court
- The hold may also be terminated or extended by a court of competent jurisdiction
What the Firm Must Do During a Hold
- Continue to follow the customer's instructions regarding transactions other than the suspected disbursement
- The hold applies to the specific disbursement or transaction under suspicion, not the entire account
Exam Tip: Gotchas
- A temporary hold applies to the specific disbursement or transaction under suspicion, not the entire account. The firm must continue following the customer's instructions for unrelated activity.
- Default maximum: 25 business days (15 initial + 10 extension). With state-authority reporting: up to 55 business days (an additional 30 days). Only supervisory, compliance, or legal personnel can authorize holds.
- The hold applies to BOTH disbursements and securities transactions. A common distractor claims it applies only to disbursements.
What Is a Trusted Contact Person?
- Under the customer-account-information rule, firms must make reasonable efforts to obtain the name and contact information of a trusted contact person when opening or updating a customer account
- The trusted contact person is NOT given authority over the account
- They are a resource for the firm to contact if:
- The firm suspects financial exploitation
- The firm observes signs of diminished capacity
- The firm needs to confirm the customer's health status or current contact information
- The customer may, but is not required to, designate a trusted contact person; the account may still be opened or maintained if the customer declines to provide one
Key distinction: The trusted contact person is an information resource for the firm, not a decision-maker or account holder.
Exam Tip: Gotchas
- Specified adult = age 65+ OR age 18+ with mental/physical impairment. Both categories qualify for temporary hold protection under the financial-exploitation hold rule.
- Trusted contact person has NO authority over the account. A trusted contact cannot make decisions or transactions on the account.
- The customer is not required to designate a trusted contact person. Firms must make reasonable efforts to obtain the information, but the customer can decline.
What Should You Check on Exam Day?
- Specified adult = 65 or older, or 18 or older with a mental or physical impairment.
- Only supervisory, compliance, or legal personnel may authorize a hold.
- Duration ladder: 15 business days initial, up to 25 if the firm's internal review supports the belief, up to 55 if reported to a state regulator, agency, or court.
- The hold covers the specific disbursement or securities transaction, not the whole account; other instructions must still be followed.
- A trusted contact person has no account authority, and the customer is not required to name one.