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Difficulty: EasyFinancial Exploitation of Senior Investors and Vulnerable Adults

Under FINRA regulations concerning the protection of senior investors and vulnerable adults from financial exploitation, which of the following statements regarding temporary holds and account safeguards are correct? (Select ALL that apply.)

  1. Temporary holds authorized under FINRA Rule 2165 apply specifically to the disbursement of funds or securities out of an account, rather than to the execution of securities trades.Answer
  2. The definition of a specified adult includes natural persons aged 65 and older, as well as persons aged 18 and older who are reasonably believed to have a physical or mental impairment.Answer
  3. C
    Placing a temporary hold under FINRA Rule 2165 automatically freezes all buying and selling of securities within the customer's portfolio during the investigation.
  4. D
    A designated trusted contact person must hold a valid legal power of attorney over the account before a firm can disclose financial exploitation concerns to them.

Answer

The correct statements are that temporary holds apply strictly to disbursements of funds or securities out of an account (not trade executions), and that specified adults include natural persons age 65 and older or adults age 18 and older with qualifying physical or mental impairments.
FINRA Rule 2165 creates a safe harbor for member firms to place temporary holds strictly on fund and security disbursements when financial exploitation of a specified adult is suspected. A specified adult is defined as any person age 65 and older, or a person age 18 and older with a qualifying mental or physical impairment. The rule explicitly limits the hold to outgoing disbursements and does not authorize firms to block or freeze securities trade executions within the customer's account.

Step-by-Step Solution

1
Identify the scope of temporary holds under FINRA Rule 2165
Rule 2165 allows broker-dealers to delay outward disbursements of cash or securities when financial exploitation is suspected, but it does not permit blocking security buy/sell orders.
Preventing financial exploitation focuses on stopping funds from leaving the account improperly while allowing normal investment transactions to proceed.
2
Determine who qualifies as a 'specified adult' under the rule
Specified adults are individuals 65 or older, or individuals 18 or older with mental/physical impairments.
This establishes the legal criteria for eligible investors protected by Rule 2165.
3
Evaluate rules regarding trusted contact persons under FINRA Rule 4512
The trusted contact is a liaison for communication and does not require trading authorization or legal power of attorney.
Requiring legal authority like power of attorney would defeat the purpose of having a secondary contact to notify during potential exploitation issues.

Key Concept

FINRA Rule 2165 Disbursement Holds and Specified Adult Criteria
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults