Mindful of the impending retirement of many millions of investors in the “baby boomer” generation, which hold a substantial amount of the world’s wealth, the Financial Industry Regulatory Authority (FINRA) continues to heavily monitor its member firms supervision of their registered financial advisors who service vulnerable and elderly investor customers. For example, last month FINRA suspended a former David Lerner Associates (DLA) branch manager for failing to properly supervise sales of interests in two illiquid oil and gas limited partnerships. The suspended manager at issue approved these transactions, which carried a high degree of risk, to some senior investors with insufficient tolerance for risk. Ultimately, FINRA concluded that the supervising branch manager failed to “conduct a reasonable analysis” of the suitability of those investments for the elderly customers or within 30 days of their risk tolerance increasing.

Supervisors of financial advisors that inappropriately take advantage of senior investors face compliance risks from FINRA’s crackdown pursuant to FINRA Rule 3110, which requires supervisors to reasonably investigate and act upon indications of potential misconduct. FINRA’s emphasis on safeguarding senior investors and, principally, its oversight of managing supervisors is additionally codified in FINRA Rule 4512 (the Trusted Contact rule) and further in FINRA Rule 2165 (Financial Exploitation of Specified Adults). FINRA Rule 4512 requires member firms to make reasonable efforts to obtain the name and contact information of a trusted contact of the senior investor as a resource for administering the investor’s account, protecting assets, and responding to possible financial exploitation. In addition, FINRA Rule 2165 affords special protections for adults aged 65 or older, including permitting member firms to place a temporary hold and restraint on securities transactions or disbursements for transactions the member firms or supervisors reasonably believe were a result of financial exploitation by a financial advisor.

This all stands as a reminder to FINRA member firms, and particularly supervisors, to heed the caution of FINRA’s renewed emphasis on the protection of senior investors.

Troutman Pepper frequently represents financial services institutions such as broker-dealers and their associated persons in FINRA arbitration disputes and regulatory matters involving customer/investor, employment, and intra-industry claims.