The investment account of an 86-year-old client was frozen by an Edward Jones office in Dallas under a rule meant to protect seniors from financial exploitation, according to InvestmentNews and The Dallas Morning News.
The client, former IBM salesman Larry Williams, had an account with the firm for two decades that had grown to $3 million. He told his advisor he wanted to withdraw money to help family members, pay monthly bills, save for emergencies, and pay $10,000 to the IRS.
But advisors with Edward Jones reportedly questioned whether Williams had diminished mental capacity, and invoked the protective measures of FINRA Rule 2165. The rule permits firms to place temporary holds on fund disbursements and securities transactions of vulnerable senior customers for up to 55 days if they suspect financial exploitation may be involved.
In the case of Williams, Edward Jones advisors asked him to provide seven documents to prove his identity to help facilitate the attempted transaction, but he was only able to provide six of them. As a result, the firm enacted a hold and locked him out of his account. Among the documents that can be requested are a bill to prove needs for sudden funds, powers of attorney or trust documents, or statements to validate outside investment plans.
After his account was locked, Williams began transferring his funds to Merrill Lynch.
Edward Jones said the action it took was consistent with its practices for protecting older clients against fraud or exploitation.
“We have policies and procedures in place to try to identify red flags, and they’re common red flags that you’d be able to find in the industry of older clients who have a dramatic change in their investment pattern or distribution pattern,” Mike Duff, director of senior client protection at Edward Jones, told InvestmentNews. “Maybe they have experienced some form of diminished capacity, et cetera. So they [an advisor] would escalate that concern to our team, and our team would evaluate the situation.”
The temporary hold on disbursements or transactions allows Edward Jones to review the situation and share any concerns with designated trusted contacts of the client. “Many states require for a mandatory report if we suspect elder exploitation, and so even if we can’t validate it yet, if we suspect it, we would need to report it to adult protective services in most states, also to state securities depending on the state,” Duff said.
An Edward Jones spokesperson sent the following statement regarding the Williams case.
“Edward Jones follows industry-required safeguards before disbursing funds to help protect clients and uphold the trust they place in us. Our top priority remains serving our clients and helping them achieve financially what is most important to them,” reads the statement from Edward Jones.
FINRA has noted that combating financial fraud has become increasingly important as scams, fraud and financial exploitation have surged in recent years, driven in part by technological advances that enable sophisticated criminal schemes targeting investors of all ages.
The authority recently proposed new Rule 2166, that would permit a temporary delay of up to five business days on disbursements or transactions when there is a reasonable belief of fraud. This separate safe harbor framework, modeled on existing Rule 2165, would permit member firms to use a “speed bump” to alert a customer of suspected fraud.
Another proposed change aims to increase the use of “trusted contacts” by giving firms additional flexibility to have clients name an emergency contact that can be used across all of the client’s accounts at the firm. Member firms would also be permitted to use the alternative term “emergency contact”.
The House of Representatives also approved a measure aimed at protecting senior citizens and vulnerable adults from financial fraud. The bill would give open-end investment companies, including mutual funds, most exchange-traded funds and their transfer agents, the ability to pause redemption requests from people 65 and older or people with disabilities when the institution suspects financial fraud or exploitation. Transfer agents maintain shareholder records and process transactions.
Duff added that, “age is absolutely one of the of the factors, but age alone when somebody’s requesting funds, wouldn’t be the only factor” for Edward Jones to initiate a review of a client’s request. Other common red flags include romance scams or dramatic investment changes.
“Sometimes if there’s a new party that’s involved in the transaction, maybe they [an advisor] can hear somebody in the background or maybe they actually come into an appointment with an individual and are kind of taking over the conversation, those are types of things that would be red flags,” said Duff.
Hyman Cotter PC routinely represents investors harmed when financial professionals and their firms engaged in misconduct that caused their clients investment losses. Our team includes lawyers who have worked for large financial institutions, including Morgan Stanley and UBS Financial Services, and regulatory bodies such as the SEC. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Hyman Cotter PC at 833-665-0784 or through our online contact form for a no-cost evaluation of your matter.
