Financial Exploitation of Seniors
FINRA has specific rules to protect vulnerable adults from financial exploitation. These rules give firms the authority to pause suspicious activity and designate an emergency contact for each account.
FINRA Rule 2165: Financial Exploitation of Specified Adults
- FINRA Rule 2165 allows broker-dealers to place a temporary hold on disbursements or transactions from the account of a specified adult when the firm reasonably believes financial exploitation has occurred, is occurring, or will be attempted
- This was the first uniform national standard for placing temporary holds to address suspected exploitation
Who Is a "Specified Adult"?
| Category | Definition |
|---|---|
| Senior investors | Any natural person age 65 or older |
| Impaired adults | Any person age 18 or older with a mental or physical impairment that renders them unable to protect their own interests |
Exam Tip: Gotchas
- "Specified adult" is NOT limited to seniors. It also includes any person age 18+ with a mental or physical impairment. The exam may test whether a 40-year-old with cognitive impairment qualifies (they do).
How the Temporary Hold Works
| Detail | Rule |
|---|---|
| When it applies | Firm reasonably believes exploitation has occurred, is occurring, or will be attempted |
| Initial hold duration | Up to 15 business days |
| Standard extension | Up to 10 additional business days if the firm has reported the matter to a state regulator or agency and has not been instructed to terminate the hold (25 business days total) |
| Further extension (2022 amendment) | 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) |
| Early termination | A state regulator, court, or the firm itself can terminate the hold before expiration |
| What is held | Disbursements (money leaving the account) AND securities transactions |
Exam Tip: Gotchas
- Default maximum is 25 business days (15 initial + 10 extension). The 2022 amendment added another 30 business days when the firm reports to a state authority, bringing the total to up to 55 business days.
- The current rule covers both disbursements AND securities transactions. Before the 2022 amendment, it only applied to disbursements. The exam may still test the older "disbursements only" wording as a distractor.
Notification Requirements
When a hold is placed, the firm must:
- Notify the trusted contact person (if one has been designated) no later than 2 business days after placing the hold
- Notify all parties authorized to transact on the account
- Notify the customer themselves
- Document the basis for the hold (why exploitation is suspected)
Exception: The firm may delay notification to a party if that party is suspected of being the one committing the exploitation.
Think of it this way: If a caregiver is the suspected exploiter, alerting them could cause them to move assets or destroy evidence. The firm can skip notifying them while still notifying the customer and other parties.
Trusted Contact Person (FINRA Rule 4512)
- FINRA Rule 4512 requires firms to make reasonable efforts to obtain the name and contact information of a trusted contact person for each customer's account
- The trusted contact must be a natural person age 18 or older
- The trusted contact is a resource for the firm, not a power of attorney
- Firms are required to make "reasonable efforts" to ask for a trusted contact. The customer can decline to provide one, but the firm must ask.
Exam Tip: Gotchas
- The trusted contact person is NOT a power of attorney. They cannot direct trading or make account decisions. They are simply someone the firm can call if exploitation is suspected. This distinction is frequently tested.
- Asking for a trusted contact is not optional for the firm. The firm must make reasonable efforts to obtain this information, even though the customer can decline to provide it.