FINRA Reminds Firms of Obligations when Dealing with Seniors

The Financial Industry Regulatory Authority (FINRA) issued a Notice to Members (NTM 11-52) this week reminding firms of their obligations when dealing with senior citizens. Another Notice to Members, NTM 07-43, is also a reminder to firms of their obligations when working with the elderly investor. Specifically, NTM 11-52 targets the use of certifications or designations which imply some special expertise about advising senior investors. Obviously, FINRA's concern here is whether the "senior" designations are being used simply as a marketing tool or serve as accurate indications that the representatives using them actually possess some training or experience that is unique and valuable to seniors.

This is important since over two-thirds of the Wall Street firms permit the usage of some form of "senior" designations by their financial advisors and the supervisory process to obtain approval of the designations by the firms was by and large not particularly discerning. A survey of 157 firms conducted in January 2011 looked at the usage of some form of senior designation, the extent to which they were used and what type of supervisory controls existed over such usage. The results showed that 89% of the responding firms had representatives that used senior designations, with only 11% having none. Of those allowing senior designations, 66% require approval and verification of credentials; 23% require approval but do not verify credentials and 11% do not require approval or verification of credentials. With some firms it was shown that getting senior designations approved did not require rigorous qualifications, therefore having the designation in no way was a representation that the holder possessed any extraordinary skills that would valuable to a senior investor.

Accordingly, FINRA suggests that firms establish a comprehensive set of standards to govern the use of these designations by firm representatives. Not only should the firms monitor and approve the criteria to use the designation but they should have supervisory procedures in place to prevent the designations from being used in an unethical or misleading manner. All of the applicable supervisory procedures should be written, communicated to employees and effectively enforced, as well as taking into consideration whether a designation is recognized by an accredited organization that has a code of ethics or standards of professional conduct.

Ultimately, FINRA is concerned about the widespread over use of senior designations as a marketing tool to target elderly investors for free lunch and dinner retirement seminars.

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