FINRA Reforms Affect Existing Estate Plans

Publication of the Financial Industry Regulatory Authority’s (“FINRA”) rule reform by the federal Securities and Exchange Commission (“SEC”) clarifies the enhanced practice rules recently enacted to protect investors from financial exploitation. As of February 2018, FINRA Rule 4512 Financial Exploitation of Specified Adults  requires FINRA members to place a temporary hold on the disbursements of a client’s funds or securities where “there is a reasonable belief of financial exploitation” of a customer falling under the criteria of a “specified adult.” Financial professionals must make a reasonable effort in obtaining the name and contact of a “trusted contact person” (“TCP”) before making changes to a client’s account.


An Added Layer of Protection

Amendment of Rule 4512 fulfills contract provisions for “incapacity” of parties. Rule 4512 allows for a hold on a specified person’s account if a TCP has made a decision that is questionable. The new legislation furthers prudential protections for clients that might otherwise be compromised by account mismanagement. FINRA members have fiduciary duty to a professional standard of care. Similarly, estate laws require fiduciary duty of a legal guardian, holder of power of attorney, executor, or trustee responsible for the administration of an elderly client’s account(s). The new TCP rule is intended as an added layer of protection; alerting an administrator of any exploitation by a third party.


How Rule 4512 Affects Estates

Financial advisers should be aware the recent FINRA rule change has the potential of affecting a pre-existing estate or trust plan. Designation of a TCP is not uncommon as an estate or trust holder becomes older. A TCP is generally named within estate documentation at the planning stage. If TCP designation by a court is recent, the documentation of an estate or trust may require restatement. There are also issues like the Durable Power of Attorney that might be necessary to address to avoid any conflict with FINRA’s new TCP requirement.


Contact an Attorney

FINRA rule reform was first proposed in coordination with the National Adjudicatory Council (“NAC”) in 2017 to consider the adequacy of existing provisions for best practices prevention of financial exploitation as result of undue influence by TCP responsible for account administration of an incapacitated client. Find out if an estate or trust plan is compliant with the latest rules protecting an elderly account holder from financial exploitation. Contact a licensed attorney specializing in estate law about TCP designation.


NY Estate Law Firm

Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about an estate or trust related-matter.      

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