In a letter sent Jan. 2, the Financial Industry Regulatory Authority (FINRA) has again highlighted treatment of senior investors by brokers and firms among its regulatory priorities for 2014.
However, FINRA may be issuing a report on firms’ practices on product-specific suitability guidelines for senior investors in the coming year or so, having noted that it has found that multiple firms have established such guidelines for seniors buying variable annuities, equity-indexed annuities, REITs and other high-yield alternative products.
“The focus on senior investors builds on work we began in 2013,” the FINRA letter stated.
Last year, in a cooperative effort, the Securities and Exchange Commission (SEC) and FINRA initiated an assessment of firms’ suitability controls, advertising, pricing and other factors with regard to policies and practices in their senior investor client base.
The assessment also reviewed firms’ written supervisory procedures to determine whether firms have in place adequate controls to identify potential financial abuse of senior investors or individuals with diminished mental capacity.
The review found that age plays a role in many firms’ supervisory processes. For example, some firms required their registered representatives to ascertain their customers’ retirement status, their future prospects for employment, their health care needs and whether there was a durable power of attorney, FINRA stated.
FINRA is keenly interested in these suitability guidelines. FINRA noted in its letter that it will shift its focus to enforcement options when it detects financial abuse, including abuse involving senior investors. FINRA specifically pointed to a fraud case where two brokers were barred from the securities industry for wrongfully converting approximately $300,000 from an elderly widow with diminished mental capacity, and for failing to fully cooperate with FINRA’s investigation.
The case, settled Nov. 29, 2013, alleged that two registered reps misappropriated approximately $320,000 from an elderly customer by liquidating two annuities and depositing the proceeds totaling approximately $300,000 into a retail bank account opened for her by one of the reps.
Those funds were withdrawn shortly thereafter from the retail bank account via two cashier’s checks made payable to the customer, and then deposited into a third-party bank account held jointly by the rep and the customer. The funds in the third-party bank account were depleted through numerous cashier’s checks made payable to one of the reps, as well as point of sale transactions.
Although both men were employed with JPMorgan Chase Securities LLC at the time of the wrongdoing, the firm was not a party to the FINRA action. However, JPMorgan did make restitution to the client, according to FINRA.
As detailed by the regulatory agency in a statement, the elderly customer maintained accounts at JPMorgan and an unspecified related bank affiliate. Between April and July of this year, the client deposited about $300,000 from the sale of two annuities into a bank account one of the reps had opened for her. (FINRA does not specify the type of annuity at issue, but both brokers had a Series 6 license, which permitted them to sell investment products such as mutual funds, variable annuities and other premium-funded variable insurance contracts.)
FINRA also discussed numerous other market regulation and trading practices priorities in its 11-page letter, but the senior investors section pertains most closely to annuities.
Maria Wood contributed to this report.