New York Securities Fraud Lawyers Blog
Elders Need Protection from Exploitation
When a client entrusts their financial professional with their money, the client assumes that the best care will be taken. Clients expect loyalty and guidance from their broker. Unfortunately, elders can be exploited and defrauded by them instead. This is why it is important to have Elder Fraud Lawyers in New York to review your elder’s portfolio at no cost.
While an investment advisor has a fiduciary duty to their clients, a broker only follows the regulation best interest rule, which is similar but systematically different. A fiduciary duty is one made up of trust, loyalty, and a duty to prevent one’s clients from engaging in any transaction that operates as fraud or deceit (Section 206 – Investment Advisers Act). The fiduciary relationship applies to the whole relationship between the client or prospective client and advisor. Fiduciaries have the affirmative duty to act with utmost good faith and full disclosure of material facts.
A broker is held to a quasi-suitability standard created by Regulation Best Interest (Reg BI). At the time of making an investment recommendation, the broker must act in the best interest of their customer. The broker must identify conflicts of interest when they make a recommendation. This only applies to retail customers, meaning customers that are making investments for personal/familial reasons, and is transaction specific (the broker does not have to monitor the investment after making the recommendation unless he chooses and/or agrees to do so). In identifying potential claims, it is important to know the distinction between these two obligations.
Elderly clients are vulnerable. One of the worst things that a broker could do to their client, especially one who is so vulnerable, is purposely mislead them. However, if a broker acts as a fiduciary in practice, fiduciary rules may still apply. This is a complicated area requiring the skill of a New York Elder Fraud Law Firm like Malecki Law, who can assess the case in a free consultation.
Disclosure and Unsuitability
According to the SEC’s Exchange Act, generally, companies are supposed to disclose information to investors that they would find relevant to making investment decisions. Presumably, every investor would want to know real interest rates of their investments and what their money is actually being used for.
Important aspects to consider while recommending securities to clients are the customer’s age and stage of life. If the customer is retired, it is likely that a goal with their investments is to sustain their assets for the rest of their lives so that they could live comfortably. Retirees may have less tolerance for risk and volatility of their investments. Their assets are irreplaceable. “Free Lunch” seminars are something that FINRA is concerned about regarding elders because of the misleading sales tactics used to induce seniors into investing in securities that may be unsuitable for them. Upon examination, FINRA found inaccurate and exaggerated claims regarding the safety and liquidity of investments being encouraged. Malecki Law’s experienced New York Elder Fraud Attorneys know what to look for.
There are also concerns regarding elders of diminished capacity. To be sure that seniors are not being taken advantage of, FINRA encourages firms to implement specific procedures for helping their senior customers such as a specific guidance department for seniors, asking whether the account holder would like to designate a secondary contact, asking if the customer would like a friend or family member to accompany them at appointments, offering training to help representatives of the firm understand elder customers’ needs, etc.
Ways to Prevent Elder Exploitation
Even better than ways to combat exploitation when it happens is preventing it in the first place. In order to prevent fraud, elders can add a trusted contact person to their account so that someone that has their best interest at heart can monitor their investments.
Brokerage firms can now put holds on transactions when fraudulent activity is suspected, in accounts for customers 65 years and older. If a firm places a hold on a transaction with suspected fraudulent activity, it must then further investigate the account. If fraudulent activity is found, the firm can extend the hold to 30 days. Depending on the results of the investigation, law enforcement can become involved.
In 2015, FINRA launched a Securities Helpline with the help of knowledgeable staff to aid seniors about concerns they have with their brokerage accounts and investment advisors. If a senior customer feels that there is any suspicious behavior in their accounts, this is a great resource.
Although it is unfortunate that elders are defrauded so frequently, Malecki Law’s Elder Fraud Lawyers in New York will assess your claims. Securities Regulations are at the forefront of the effort to stop defrauding the elderly, helping lawyers in their work to put a halt on unethical activity.
Contributions by Bethany Friedman, NYLS Securities Arbitration Seminar and Field Placement Extern