March 4, 2022
A few years ago, the SEC approved two rules designed to protect brokerage account holders if they fell victim to elder financial abuse. FINRA Rule 4512 requires brokers to ask their clients for the name of a “Trusted Contact” to call if they suspect financial abuse. Rule 2165 allows brokers to temporarily withhold disbursements from accounts if they suspect fraud.
These rules give some people pause. Some are concerned about privacy, others about scope. One broker complained: “FINRA now would like us to use our judgment to perform social work.” In fact, the securities industry was so concerned about liability to clients for reporting suspected abuse that it lobbied for and secured passage of the SeniorSafe Act to protect itself.
Should you provide a Trusted Contact? Are Disbursement Holds a good thing?
In our view, Rule 4512—naming a Trusted Contact—is a no-brainer. There’s no harm in allowing someone you trust to call another person you trust if they are worried about you. You can name anyone you like. They won’t have any authority over your account. It’s a good thing.
Disbursement Holds (Rule 2165)
Rule 2165 — stopping you from withdrawing money from your account — is a lot more intrusive. However, if someone has gotten control of your account — or control over you — your broker might be the only person standing between them and your nest egg.
We like the fact that Rule 2165 requires brokers to have supervisors trained to detect financial abuse, so it’s not as though they are going completely on intuition. (But what’s wrong with intuition?)
The only problem is that there is no clear escalation path. After the disbursement is put on hold and the Trusted Contact is alerted, then what? Scammers know how to answer questions raised by concerned friends and relatives. Your Trusted Contact needs to be prepared to begin an investigation anyway. Here’s how to help ensure that happens.
First, make sure your broker and Trusted Contact know one another so the first time they talk isn’t in the middle of an emergency. Surprisingly, many financial advisors do not have relationships with their clients’ heirs.
Second, recognize that if there is a problem, you are going to need a lawyer. Trying to find a lawyer in the middle of a crisis is like trying to find a new doctor when you are gravely ill: They are going to send you straight to the ER, which, in this case, is likely to be an understaffed social services agency. Avoid the Legal ER. Make sure you have a lawyer today.
Tip: If you don’t have a lawyer, find one to help you draft a will or—if yours is more than five years old—to update it.
Third, make sure your Trusted Contact, broker, and lawyer all have each other's telephone numbers and email addresses and give them permission in writing to talk to one another.
Fourth, if the people you trust the most are no longer around or far away, talk to your financial advisor and lawyer about placing your assets into an irrevocable trust. They are not for everyone but they do provide strong protection against fraud. You can even appoint a trust protector to watch over the trustee or give someone else a durable financial power of attorney to obtain trust documents and financial reports.
Note: Unlike irrevocable trusts, revocable or living trusts don’t usually provide much protection because you are usually your own trustee. If you get scammed, so does your trust.
Growing older doesn't have to mean growing more vulnerable, but you do need to give the people you trust the ability to protect you.
SafetyDeed helps protect senior homeowners from fraud, even if they fall victim to dishonest caregivers, guardians or attorneys or experience a cognitive decline.