New rule lets U.S. brokers intervene if they suspect scams, dementia

NEW YORK The U.S. Financial Industry Regulatory Authority announced a new rule on Thursday that allows brokers to pause disbursements from client accounts if they suspect a client is suffering from dementia or being influenced by caregivers or scam artists.

The rule, which will go into effect in February 2018, will also require brokerages to collect the name and phone number of a “trusted contact person,” which the brokerage will call if a withdrawal raises such concerns.

The delay is meant to give the brokerage time to contact trusted people and investigate the reasons for the disbursement of funds or securities.

Protecting senior investors from financial exploitation has been a top concern for FINRA in recent years, which launched a hotline in 2015 for seniors who have questions or concerns about their investment accounts.

The new rule, which applies to all of FINRA’s 3,900 member firms nationally, aims to resolve conflicts with some legacy FINRA rules that created problems for brokers who wanted to intervene on a client’s behalf.

For example, industry rules require brokerages to get the best possible prices for clients’ securities, which they may not be able to do if they pause a transaction that is later determined to be legitimate. This rule provides protection against that scenario.

Because FINRA is a self-regulatory organization solely for the securities industry, and its actions do not have the force of law, the new rule does not extend to state or federal courts if a client or family member were to file a lawsuit.

However, a few states, including Missouri, have passed laws with similar protections for brokers.

(Reporting By Elizabeth Dilts- Editing by Bill Rigby)