Tag Archives: FINRA

You should have periodic checkups with an estate planning attorney; investment, FINRA or financial planner advisor; banker; CPA; health provider; or other person – to help you to avoid or get out of situations of financial abuse, exploitation, control, and lack of information, access and possession

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The following is the slightly longer version of the title to this discussion:

Another reason why you should have periodic checkups with an estate planning attorney, investment, FINRA or financial planner advisor, CPA, banker, fiduciary or trustee, mental or physical health, medical or care provider, or other person – who can help you to avoid or to get out of situations of elder, spousal, partner, dependent adult, and joint- or co-owner financial abuse, exploitation, control, and lack of information, access and possession.

            This discussion is primarily to provide another good reason for, and to encourage people to, periodically meet or talk with an appropriate professional for a checkup as a regular matter of practice. I realize that in my litigation practice I only see the bad cases. But I am seeking a lot more cases of elder, spousal, partner, dependent adult, and joint- or co-owner financial abuse and exploitation where one person in the relationship controls the finances including information about the finances, accounts and investments, and access to and possession of the finances, money, accounts and investments.

            It is not uncommon for one person in a relationship to be primarily responsible for or tasked with handling most financial matters or tasks. And in most relationships that ends up being fine. But it creates a potential risk or an issue of risk management that might not be obvious or known until the person who is not handling the finances begins to ask questions and wants to have information and access, or when the relationship begins to sour or even ends. At some point you may begin to see resistance from the person who has been in charge of or tasked with the finances, and as you persist and even begin to push for information, and access and possession, you may begin to see that the person who has been in charge or has been tasked with the finances is not as trustworthy or benevolent has you had thought – instead you may begin to see a controlling, possessive, secretive, self-centered, or vindictive personality, or even dysfunctional, dangerous and damaging. Whereas things had seemed fine until you started wanting to become knowledgeable and involved, if you persist you may see an effort being made to convince you that all is fine and that you are being unreasonable or even paranoid, or that you are being insulting to or untrusting of the person in control, or to downplay or misrepresent the situation and or the narrative, or to gaslight, intimidate, belittle, coerce, or force you stay in line and to accept the status quo. The potential scenarios and efforts to keep and maintain the status quo are numerous.  

            If the above scenarios sound dark, that is because they are dark. But I am doing this discussion because I am seeing more and more of these situations including between and involving spouses, partners, dependent adults, joint- or co-owners, and other family members or relatives. These situations also often include instances of undue influence or persuasion, taking undue advantage, and fraud. In most cases the wrongdoer digs in, tries to control and misrepresent the narrative, gaslights, and says well . . . take it back if you can. As I talk with other attorneys, they are seeing the same. These cases can be long and complicated to pursue – which fits the strategy of the wrongdoer to deny, delay, and hide, and to prevail by grinding down. In every case there is the applicable law, and what you know and can prove through evidence that is admissible, what you need or want to know, and what you don’t know but believe that you can obtain and find out through investigation and discovery.

            The primary point of this discussion is to try to safeguard and protect people from, and to prevent, the above situations, and to be able to remedy them if they occur. These situations are best prevented if there is or if there becomes mutual access to information about the finances, and access to and possession of the finances, accounts, money, and investments (other than those assets that truly are separate property by law).  

            Thus, why do I say that people should periodically see an estate planning attorney; investment, FINRA or financial planner or advisor; CPA; banker; fiduciary or trustee; mental or physical health, medical or care provider; or other person for a checkup? Because they and other professionals can or may be able to help or to help guide the victim or person at risk to avoid or how to avoid or get out of situations of elder, spousal, partner, dependent adult, and joint- or co-owner financial abuse, exploitation, control, and lack of information, access and possession.

This discussion is not about professional legal duties. If you are a professional you should already make sure that you are knowledgeable or that you become knowledgeable about your legal duties and practices. Regardless of legal duties, if you are a professional, you may already have, and I encourage you to have, standard procedures or processes whereby you obtain information that could help to indicate whether your client, or one of your clients if you are representing joint clients, is a victim or is at risk of being a victim of elder, spousal, partner, dependent adult, and joint- or co-owner financial abuse, exploitation, control, and lack of information, access and possession. Thus, for example, the client could be seeing you for a periodic, or even an initial, checkup to discuss changes in the law, new opportunities, and relevant changes in their lives or wishes.

            If you are an estate planning attorney, investment, FINRA or financial planner or advisor, CPA, banker, fiduciary or trustee, or mental or physical health, medical or care provider there may well already be reasons for you to ask about or to discuss with your client, or clients jointly or separately, the significant financial assets, accounts and investments, and who has, or controls, access, possession, and information, as a standard practice for the purpose of providing professional services. Answers, or lack of answers or information may also identify abuse, exploitation, risk and or issues of risk management. It is far better to identify, prevent and avoid significant risk, and to remedy any significant risk, as soon as possible. A person who is at risk should not be alone or in a silo about the situation, and should be made to be comfortable coming out and discussing the situation and possible needs, options, remedies, and who to see for help. And also ask the client in a private one-on-one setting to provide names of and contact information for trusted family members, trusted friends, and people who the client designates as trusted contacts in circumstances of concern or need.

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In Loving Memory of Deborah Ann Tate Trotta (September 12, 2021).

You can see a discussion about Deb, and her situation before and after death by clicking on the below link which is titled and discusses:

Someone who should not be a suicide decedent’s representative, or control or get the suicide decedent’s remains, property or assets – every state needs a law and cause of action. In loving memory of Deborah Ann Tate Trotta (September 12, 2021). https://californiaestatetrust.com/2022/12/25/someone-who-should-not-be-allowed-to-become-a-suicide-decedents-representative-or-to-get-the-suicide-decedents-assets-and-property-a-law-and-cause-of-action-that-every-stat/

Good people need to be on the lookout, and take actions.

Thank you for reading. Please feel free to pass this blog and blog post and information to other people who would be interested.

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Best to you,

David Tate, Esq. (and inactive CPA)

  • Business litigation and disputes – business, breach of contract/commercial, co-owners, shareholders, investors, founders, workplace and employment, environmental, D&O, governance, boards and committees.
  • Trust, estate and probate court litigation and disputes – trust, estate, probate, elder and dependent abuse, conservatorship, POA, real property, mental health and care, mental capacity, undue influence, conflicts of interest, and contentious administrations.
  • Governance, boards, audit and governance committees, investigations, auditing, ESG, etc.
  • Mediator and facilitating dispute resolution:
    • Trust, estate, probate, conservatorship, elder and dependent abuse, etc.
    • Business, breach of contract/commercial, owner, shareholder, investor, etc.
    • D&O, board, audit and governance committee, accountant and CPA related.
    • Other: workplace and employment, environmental, trade secret.

Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation, or as or for my opinions and views on the subject matter.

Also note – sometimes I include links to or comments about materials from other organizations or people – if I do so, it is because I believe that the materials are worthwhile reading or viewing; however, that doesn’t mean that I don’t or might not have a different view about some or even all of the subject matter or materials, or that I necessarily agree with, or agree with everything about or relating to, that organization or person, or those materials or the subject matter.

Please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

My two blogs are:

http://tateattorney.com – business, D&O, audit committee, governance, compliance, etc. – previously at http://auditcommitteeupdate.com

Trust, estate, conservatorship, elder and elder abuse, etc. litigation and contentious administrations http://californiaestatetrust.com

David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.

FINRA proposed financial exploitation rule change for elders and vulnerable adults

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FINRA has sent to the SEC a proposed rule change to help protect seniors and vulnerable adults from financial exploitation: “FINRA is proposing amendments that would require firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account. In addition, FINRA is proposing a new rule that would permit firms to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold. The rule change is not effective until approved by the SEC.”

“A small number of states have enacted statutes that permit financial institutions, including broker-dealers, to place temporary holds on “disbursements” or “transactions” if financial exploitation of covered persons is suspected. In addition, the North American Securities Administrators Association (“NASAA”) created a model state act to protect vulnerable adults from financial exploitation (“NASAA model”). Due to the small number of state statutes currently in effect and the lack of a federal standard in this area, FINRA believes that the proposed rule change would aid in the creation of a uniform national standard for the benefit of members and their customers.”

The proposed rule change is quite lengthy. Of course, and assuming that the rule change is approved by the SEC, the real test is how the different FINRA members apply the rule in everyday occurrences, the policies and procedures that they put in place, and the training that they provide to their employees. You will note that FINRA acknowledges that the definitions are broad, which is typical in this area of law – see, for example, the California elder abuse statutes in the California Welfare & Institutions Code and the statutes pertaining to mental capacity and undue influence in the California Probate Code – but those are detailed discussions for other materials – I have given presentations for attorneys, fiduciaries and other professionals on these topics including elder abuse and elder protection, probate court procedures, and fiduciary standards of care.

Below are a couple of the pertinent rule change provisions.

“FINRA believes that “specified adults” may be particularly susceptible to financial exploitation. Proposed Rule 2165 would define “specified adult” as: (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests. Supplementary Material to proposed Rule 2165 would provide that a member’s reasonable belief that a natural person age 18 and older has a mental or physical impairment that renders the individual unable to protect his or her own interests may be based on the facts and circumstances observed in the member’s business relationship with the person. The proposed rule change would define the term “account” to mean any account of a member for which a specified adult has the authority to transact business.”

“Because financial abuse may take many forms, FINRA has proposed a broad definition of “financial exploitation.” Specifically, financial exploitation would mean: (A) the wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult’s funds or securities; or (B) any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority, regarding a specified adult, to: (i) obtain control, through deception, intimidation or undue influence, over the specified adult’s money, assets or property; or (ii) convert the specified adult’s money, assets or property.”

In addition to (1) initially attempting to obtain from the client information about a trusted person who the member can contact in possible situations of exploitation, and (2) attempting to contact that trusted person when appropriate, “The proposed rule change would permit a member to place a temporary hold on a disbursement of funds or securities from the account of a specified adult if the member reasonably believes that financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted. A temporary hold pursuant to proposed Rule 2165 may be placed on a particular suspicious disbursement(s) but not on other, non-suspicious disbursements. The proposed rule change would not apply to transactions in securities.” I note that although the proposed rule change would not apply to “transactions in securities,” it would nevertheless apply to a distribution of the post-sale proceeds from an account.

You should also note that the rule change does not require the member to obtain trusted person contact information from the client (it only requires the member to try to obtain that information), nor does the rule change require the member to contact the trusted member in possible situations of exploitation, nor does the rule change require the member to put a temporary hold on the account or transactions in possible situations of exploitation.

I am sure that the proposed rule change goes only as far as it does because members obviously do not want to be liable for alleged failure to act. But FINRA members in California also should already be up-to-speed on the mandated reporter of suspected financial elder abuse provisions at California Welfare and Institutions Code section 15630.1, which in part provide – “(a) As used in this section, “mandated reporter of suspected financial abuse of an elder or dependent adult” means all officers and employees of financial institutions. (b) As used in this section, the term “financial institution” means any of the following: (1) A depository institution, as defined in Section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. Sec. 1813(c)). (2) An institution-affiliated party, as defined in Section 3(u) of the Federal Deposit Insurance Act (12 U.S.C. Sec. 1813(u)). (3) A federal credit union or state credit union, as defined in Section 101 of the Federal Credit Union Act (12 U.S.C. Sec. 1752), including, but not limited to, an institution-affiliated party of a credit union, as defined in Section 206(r) of the Federal Credit Union Act (12 U.S.C. Sec. 1786(r)).”

Additionally, there are separate California mandated reporter of suspected elder abuse requirements at California Welfare and Institutions Code section 15630 which provide that “(a) Any person who has assumed full or intermittent
responsibility for the care or custody of an elder or dependent adult, whether or not he or she receives compensation, including administrators, supervisors, and any licensed staff of a public or private facility that provides care or services for elder or dependent adults, or any elder or dependent adult care custodian, health practitioner, clergy member, or employee of a county adult protective services agency or a local law enforcement agency, is a mandated reporter.”

Some of the proposed rule change provides for pretty interesting reading. See, for example, footnote 14 which provides a possible example: “A customer’s request to change his or her trusted contact person may be a possible red flag of financial exploitation. For example, a senior customer instructing his registered representative to change his trusted contact person from an immediate family member to a previously unknown third party may be a red flag of financial exploitation.”

And of course I will be providing further analysis and updates on this topic. The proposed FINRA rule change has been a long time coming.

Dave Tate, Esq., San Francisco and California