Late last year, FINRA submitted to the SEC a proposed rule that would assist clients 65 years and older and those that have a mental/physical impairment
that may render the individual unable to protect his/her own interests (i.e. financial exploitation). Mental or physical impairment is defined as a
person's reasonable belief that a client 18 years or older is unable to protect his/her own interests based on the facts and circumstances observed
in your business relationship with the client (i.e. they do not have to be medically found to be impaired as it is your judgment called which should
be documented in your notes).
SEC approved FINRA Rule 2165 recently and it will go into effect on February 5, 2018. I anticipated this Rule being approved
and put together the attached Trusted Contact Person Form for you to use with clients interested in providing this information. A copy of the Compliance Alert from September 2016 discussing the rationale for the form is also attached. I would recommend that when you
complete a new account that the Trusted Contact Person Form be included with your paperwork; however, it is voluntary and not mandatory.
The Rule basically says that FINRA willl allow a temporary hold to be placed on disbursements of funds or securities of a client 65+ years old or a
client that is impaired if:
1. We reasonably believe that financial exploitation is occuring, has been attempted or will be attempted AND
2. Within 2 business days after the temporary hold is placed, we provide notification orally or in writing of the temporary hold and the reason for
the temporary hold to:
a. All parties authorized to transact business on the account unless we believe that individual has/is/will engage in financial exploitation of the
b. Trusted Contact Person(s) unless we believe that individual has/is/will engage in financial exploitation of the client. AND
3. We immediately initiate an internal review of the facts and circumstances that caused the member to reasonably believe that the financial exploitation
of the client has/is/may occur.
Any temporary holds will expire not later than 15 business days after the date we put a hold on the disbursement of funds or securities, unless otherwise
terminated or extended by a regulator or court. If our findings support our reasonable belief of financial exploitation is/has been/may occur to
the client then we are authorized to extend the temporary hold for no longer than 10 business days following our initial temporary hold date.
Even though the Rule does not go into effect until next year, we can still be diligent with elderly clients now if financial exploitation may be suspected.
If you suspect financial exploitation of a client, please prepare a written statement as to the facts and circumstances that you believe have occurred
with the client as we will need to follow a record retention process. Please forward the information to Compliance so it can be reviewed and guidance
provided, as once the Rule becomes effective any authorization for temporary holds must be approved by Compliance for consistency with the record
retention and establishing the temporary hold process.
This Rule will give us a safe harbor in exercising discretion in placing temporary holds on disbursements of funds or securities for elderly/impaired
clients. However, please know that the Rule does not require us to place temporary holds (i.e. we will not be held liable
if we do not put a temporary hold on an account of an elderly/impaired client and they are financially exploited).
Any questions or thoughts that you would like to share on this topic, please let me know. Also, I will be traveling for the next 1 1/2 weeks, but will
be available via email and will try to respond as quickly as possible.