Protecting Seniors: A Priority for FINRA, Federal and State Legislators, and Arbitration Panels

By Samuel E. Cohen, Esq.*

Key Points:

  • Protecting seniors from financial exploitation is a goal of recently proposed legislation at the state and federal levels.
  • Distinction between state and federal legislation as to whether reporting of suspected financial abuse is mandatory.
  • Proposed legislation provides protection from privacy laws to those who report suspected abuse.


America's aging population is growing rapidly and, as a result, a target for financial exploitation by unscrupulous individuals. Over the last several years, the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have made protecting seniors a priority through regulatory notices and initiatives such as FINRA's Securities Help Line for Seniors.

More recently, however, protecting seniors has become a priority at the state and federal levels. FINRA has proposed a rule relating to the financial exploitation of seniors and other vulnerable adults, and the potential exploitation of elderly investors has also raised the ire of a few arbitration panels in recent cases.

A distinction among the various legislation and rules proposed is whether the reporting of financial exploitation is mandatory. As of July 1, 2016, laws in Alabama, Indiana and Vermont require financial advisors to alert state authorities of suspected financial abuse of the elderly or other vulnerable adults. In addition to mandatory reporting in situations involving people older than 65 or who are disabled, the laws also allow advisors to stop a disbursement of funds from client accounts and gives advisors immunity from civil liability.

The Alabama, Indiana and Vermont laws generally follow a model rule adopted in early 2016 by the North American Securities Administrators Association (NASAA), a voluntary association whose membership consists of 67 state, provincial and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico. The NASAA model mandates reporting to a state securities regulator and state adult protective services agency when a qualified individual has a reasonable belief that financial exploitation of an eligible adult has been attempted or has occurred. This model also authorizes disclosure to third parties only in instances where an eligible adult has previously designated the third party to whom disclosure may be made. It also directs that disclosures may not be made to the third party if the qualified individual suspects that third party of the financial exploitation.

In April 2016, NASAA made available to its members a training program called “Senior$afe,” developed in Maine for bank and credit union employees. The initiative has been modified to apply to other financial services professionals. The program, created by the Maine Council for Elder Abuse Prevention, includes a presentation highlighting behavioral and account management changes that may indicate a senior client's cognitive decline and financial abuse. The other part of the training focuses on reporting incidences within a firm and to outside authorities.

On the federal level, on July 5, 2016, the House of Representatives unanimously approved legislation that would protect financial advisors from liability when they try to stop the financial exploitation of seniors. The measure, the Senior$afe Act, passed the house on a voice vote. The Act ensures that advisors, compliance officers and other supervisory personnel who report elder financial abuse to federal or state securities regulators, law enforcement, adult protective services or other appropriate agencies are shielded from liability for violation of privacy laws on the condition that those individuals have received training on how to spot signs of elder abuse. Meanwhile, Senator Susan Collins (R-Maine), Chairwoman of the Senate Special Committee on Aging, has introduced a companion bill in the Senate. In May, Senator Collins urged state securities regulators to build support for the bill. Unlike the Alabama, Indiana and Vermont laws that follow the NASAA model, the Senior$afe Act does not require the reporting of suspected abuse. Rather, it simply provides legal protection to those who decide to report suspected abuse. The Financial Services Institute (FSI) supports the Senior$afe Act, which was described as "a big step forward in the prevention of elder financial abuse across the country" by FSI president and chief executive Dale Brown.

FINRA, by way of Regulatory Notice 15-37, proposed its own rule on financial exploitation of seniors and other vulnerable adults. FINRA’s proposal attempts to accomplish two goals: (1) provide the advisor, at the time of an account opening or routine updating, information on a "trusted contact" who can be contacted in the event that the advisor believes a customer is being subjected to financial fraud or abuse, and (2) allow, but not require, an advisor to place a temporary "hold" on disbursements from an account when there is a reasonable belief that the customer is being exploited. The proposal includes a proposed "safe harbor" period for the time during which the hold is in effect. Firms would also incur additional responsibilities to provide disclosure about their right to share certain private information with the customer's trusted contact. The proposed FINRA rule has not yet been approved. However, the treatment of seniors and other vulnerable investors is a FINRA examination priority in 2016.

Finally, protecting senior investors seems to have been a priority of two recent arbitration awards. In early 2016, an arbitration panel ordered Morgan Stanley to pay more than $8.6 million to a retiree for losses tied to alleged unauthorized trading and unsuitable investments, including an investment in a risky Chinese internet company. The FINRA arbitration panel awarded the customer, who is in his seventies, $6 million in damages, along with $2 million in punitive damage and more than $491,700 in legal and other costs. In another recent FINRA arbitration, an elderly woman and her daughter were awarded more than $50,000 for what an arbitrator deemed insufficient advice regarding the tax consequences of an IRA distribution. The award included compensatory damages, attorney's fees and treble damages pursuant to a Florida state law preventing the "exploitation of an elderly person."

Clearly, protecting senior investors is on the minds of regulators, state and federal lawmakers, as well as arbitration panels. All agree that protecting the elderly from abuse is a high priority. However, between the "mandatory" model advanced by the states and the permissive model advanced by FINRA and federal lawmakers, there are differences of opinion on how best to accomplish the objective. In doing business with senior citizens, financial services professionals must keep themselves informed as to any developments with the proposed federal law, FINRA proposed rule and individual states in which they are licensed.

*Sam is a shareholder in our Philadelphia, Pennsylvania office. He can be reached at



Defense Digest, Vol. 22, No. 3, September 2016. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact