Senior Abuse in the Securities Industry A Major Ongoing Concern

shutterstock_103079882As long time readers of our blogs know senior abuse is an ongoing concern in the securities industry. See Massachusetts Fines LPL Financial Over Variable Annuity Sales Practices to Seniors; The NASAA Announces New Initiative to Focus on Senior Investor Abuse; The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective.

Recently, a number of regulatory agencies have begun new initiatives against investment fraud targeted at seniors with the intent to provide resources to seniors and financial advisors. Regulators fear senior abuse in the investment sector will be a growing trend over the next couple of decades if not addressed soon.

According to a National Senior Investor Initiative report cited by the Financial Industry Regulatory Authority (FINRA), the Social Security Administration estimates that each day for the next 15 years, an average of 10,000 Americans will turn 65. According to the U.S. Census Bureau in 2011, more than 13 percent Americans, more than 41 million people, were 65 or older. By 2040, that number is expected to grow 79 million doubling the number that were alive in 2000.

Often times older clients are lucrative targets for brokers because they tend to amass substantial retirement assets as compared to younger investors. But coinciding with increased assets are substantial risks that advisors and other non-licensed persons may try to take advantage of vulnerable seniors. An aging population has caused regulators and brokerage firms to increase their training with investment advisers and brokers to protect senior investor.

For example, the National Senior Investor Initiative report includes observations and practices that focus on how firms conduct business with senior investors. The examinations focused on the types of securities purchased by senior investors, the suitability of investments, training of representatives, marketing, communications, account documentation, risk disclosures, and supervision.

In addition, FINRA recently established a toll-free FINRA Securities Helpline for Seniors where elderly investors can seek assistance from FINRA staff regarding concerns about their portfolio or their broker. In the hotline’s first eight days of existence the line took about 100 calls from people ranging in age from 40 to 99, according to FINRA. The line is part of FINRA’s efforts to try to find and identify problems before it grows to the level of triggering a FINRA case that really only occurs once substantial harm is realized by seniors.

These initiatives come on the heals of recent regulatory actions concerning senior abuse. For example, FINRA recently filed a cease-and-desist order against Avenir Financial Group for sales of equity in the firm and promissory notes. FINRA alleged that Avenir mislead senior investors about the financial health of the firm and raised more than $730,000 over three years.

In addition, regulators worry that in the short term that brokers may be placing seniors in risky investments that chase yield such as inappropriate nontraditional investments like variable annuities, non-traded real estate investment trusts (Non-Traded REITs), structured products, and other alternative products. Regulators have warned brokers that the dangers of seniors’ chasing yield through alternative investments comes from the fact that they don’t have as much time as other clients for them to pay off. In addition, if these investments fail the result is a major loss of irreplaceable life savings.

Investors who have suffered investment losses caused by broker misconduct may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.