FINRA to Firms: Investment by Seniors Subject to Special Compliance Considerations

Attorney Advising Disclaimer

FINRA, the SEC and NASAA have all issued 2014 notices to member firms, brokers and financial advisers regarding how products and services may, should and should not be marketed and sold to senior citizen investors.

FINRA: 2014 Regulatory and Examination Priorities Letter

In April of 2013, FINRA first announced it would increase scrutiny of how firms market complex financial products to seniors and the elderly, stating at the time that cases of elderly fraud and broker misconduct were "something that has all of our attention."

Discussing complexities such as real-estate investment trusts (REITs), exchange-traded funds (ETFs) and variable annuities (VAs), the regulatory agency called into question the issue of suitability and how (or if) firms have taken steps to protect vulnerable senior clients from financial abuse, mainly those with diminished mental capacity or those less experienced investors, deemed "unsophisticated" in industry terms.

For instance, in July, FINRA barred Redland, California registered principal John Thomas Thornes (Thornes & Associates Inc., Investment Services) for allegedly stealing $4.2 million from two trust accounts, one of which was established to provide medical care to an elderly Alzheimer's patient. Thornes had recommended the use of margin and liquidation of conservative holdings to an account trustee, causing unnecessary charges and risk inconsistent with the trustee's investment objective and minimal risk tolerance.

In December, FINRA barred Los Angeles broker Scott Schroeder (Milkie Ferguson Investments, Inc.) for making unsuitable recommendations to multiple elderly customers. He allegedly recommended high-risk products to customers over 70 years old with moderate risk tolerances.

To better ascertain suitability, firms may ask about retirement status, healthcare needs and issues relating to power of attorney. FINRA also vowed to review firms' policies and procedures regarding the identification and addressing situations of diminished mental capacity.

If you have invested with a firm, broker or financial adviser whose bad faith recommendations of complex securities were in conflict with your investment objectives or risk tolerances and such misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881.

News: How your firm can stay compliant when serving seniors (InvestmentNews)

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