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Chris Hopkins of Barnett & Co.

Fraudulent investment schemes and swindles have been with us since the dawn of civilization. But scams targeting seniors are especially heinous, as older investors are frequently more susceptible to a phony pitch and the consequences of falling victim are usually more devastating. Ever since Methuselah bought the Babylon Bridge, scammers have afforded special attention to older investors, sometimes robbing them of their life savings and financial security.

That is why the SEC acted in February to assist financial institutions in reducing the incidence of investment fraud perpetrated against more vulnerable investors.

In approving a modification of an existing rule, the SEC will now require that brokerage firms make a reasonable effort to identify a "trusted contact person." This contact person would be a friend or family member named by the investor whom the broker could contact if suspicious activity is suspected, to confirm the client's health status, or to identify a legal guardian or trustee. The intention is to allow the broker to reach out to someone else with knowledge of the customer's situation if something seems amiss, before the situation devolves irreparably.

Clearly, the rule sets up a compromise between privacy and security, but the client may refuse to provide such contact data and financial institutions are not required to backfill contact info for existing accounts unless a significant change is submitted (like a new address). The rule provides a mechanism for brokers to intervene if fraud is suspected, but also to reach out to a concerned party if the client cannot be reached or if the client's capacity for decision- making appears to be impaired.

A second SEC action allows for financial institutions to temporarily freeze disbursements from an account belonging to a "specified adult" if the institution suspects fraudulent activity. A specified adult is one considered at greater risk for fraud, and includes people over 65 or adults of any age with a mental impairment that might increase their vulnerability.

The broker must then notify all parties to the transaction in question, including the trusted contact person if named, and may lift the hold if satisfied that the disbursement is legitimate. If indeed a fraud is in progress, requisite legal steps can be initiated. If no action is taken, the hold is automatically lifted after 15 days.

A 2012 MetLife study cited in the SEC action found that losses from elder financial abuse exceeded $2.9 billion annually, and that women were twice as likely as men to fall victim. Those new safeguards could help address this insidious and growing injustice.

Of course, the best bulwark against scammers is to be proactive and skeptical in any financial transaction, especially if you have been solicited. Don't hesitate to ask questions and demand proof of identity and credentials. Stick with known institutions whose existence and stability can be readily verified. And be extremely reticent to conduct business with new firms or salespeople over the phone.

FINRA, the self-regulatory agency for the brokerage industry, has taken steps to help senior investors protect themselves. One initiative is the toll-free Securities Helpline for Seniors, created in 2015 to provide older investors with information regarding their investments and brokerage accounts. The helpline provides assistance in reading statements and understanding transactions, and can be reached at 844-574-3577.

FINRA also administers BrokerCheck.FINRA.org, a repository of information pertaining to brokers and advisers including their compliance records and any disciplinary actions. This is must-read for anyone considering engaging a new financial consultant.

Sensible regulations can help reduce the incidence of fraud against senior investors. But good old fashioned due diligence remains your best defense.

Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co., in Chattanooga.

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