Elder Financial Abuse: When Can a Brokerage Firm Be Held Responsible?

Financial exploitation of older Americans is a growing problem, and the consequences can be devastating. A senior investor may spend decades building retirement savings only to lose a substantial portion of those assets in just weeks or months.

The perpetrator may be a stranger running an investment scam, a caregiver, family member, new acquaintance, or even a trusted financial professional. Elder financial abuse can involve suspicious withdrawals, unauthorized transfers, investment fraud, or manipulation of a vulnerable investor. It could also involve a financial adviser ignoring an investor’s risk profile to “churn” their account to maximize the adviser’s own compensation.

When money disappears from a brokerage account, an important question often follows: Could the brokerage firm have stopped it?

The Financial Industry Regulatory Authority (“FINRA”) regulates U.S. broker-dealers and has established rules to help brokerage firms identify and respond to suspected financial exploitation. Those protections, and their limitations, can become important when determining whether the conduct of a broker, financial adviser, or brokerage firm warrants investigation.

What Is Elder Financial Exploitation?

FINRA Rule 2165 generally defines financial exploitation to include the wrongful or unauthorized taking or use of a protected person’s funds or securities. The definition also covers obtaining control of assets through deception, intimidation, or undue influence.

The rule generally protects investors age 65 and older. It can also cover certain younger adults when a brokerage firm reasonably believes an impairment prevents the investor from adequately protecting their own interests.

Warning signs of possible elder financial abuse may include:

• sudden or unusually large withdrawals;
• transfers to unfamiliar third parties;
• unexplained liquidation of long-held investments;
• abrupt changes in investment strategy;
• a new person trying to control communications with the financial adviser;
• an investor appearing confused about transactions; or
• transactions inconsistent with the investor’s financial circumstances or history.

An unusual transaction does not necessarily establish financial exploitation. Senior investors retain the right to control their assets and make their own financial decisions. But multiple warning signs may raise questions about what a financial professional or brokerage firm observed and how it responded.

What Can Brokerage Firms Do?

FINRA has established several protections for senior investors.

Under FINRA Rule 4512, brokerage firms must make reasonable efforts to obtain the name and contact information of a “trusted contact person” for non-institutional customer accounts. A trusted contact gives the firm someone to contact when concerns arise about possible financial exploitation or an investor’s well-being. Importantly, naming a trusted contact does not give that person control over the investor’s account.

FINRA Rule 2165 provides another safeguard. When a brokerage firm reasonably believes someone has financially exploited, is financially exploiting, has attempted to financially exploit, or will attempt to financially exploit a protected adult, the rule permits the firm, subject to specified requirements, to place a temporary hold on certain transactions or disbursements.

A temporary hold may give the firm time to investigate suspicious activity before an investor loses valuable, and often irreplaceable, retirement savings.

An important distinction exists, however: a firm’s ability to place a hold does not automatically make the firm legally liable whenever it fails to do so. Rule 2165 provides a regulatory safe harbor for qualifying temporary holds; it does not make brokerage firms guarantors against financial exploitation.

Whether a firm bears responsibility depends on the facts, applicable law, the firm’s obligations to the customer, and the conduct that caused the loss.

What Did the Brokerage Firm Know?

When an investor or their family discovers a substantial loss, one of the most important questions may be what did the brokerage firm know, and when did it know it?

Consider an elderly investor who historically maintained a conservative portfolio and rarely made large withdrawals. The investor suddenly begins liquidating investments and requesting substantial transfers to an unfamiliar third party. A new acquaintance begins participating in conversations with the financial adviser, and the investor appears confused about the transactions.

No single fact necessarily establishes wrongdoing by the brokerage firm. Together, however, these circumstances will warrant closer examination.

An investigation may examine account statements, transaction records, emails, recorded telephone calls, internal notes, supervisory alerts, trusted-contact information, and communications involving the firm’s financial professionals.

The inquiry may also extend beyond the individual financial adviser. Broker-dealers must establish supervisory systems reasonably designed to achieve compliance with applicable securities laws and FINRA rules. Depending on the circumstances, investigators may examine the firm’s employee training, escalation procedures, supervision, and response to warning signs.

FINRA’s 2026 Regulatory Oversight Report identifies deficiencies involving senior-investor protections, including failures concerning trusted-contact information, employee training, and documentation associated with temporary holds. FINRA recommends that firms maintain escalation processes for suspected financial exploitation and train employees to recognize warning signs.

What If the Financial Adviser Is Involved?

A particularly serious situation arises when a broker or other trusted financial professional participates in the suspected exploitation.

Older investors may develop long-term relationships with financial advisers and rely heavily on their recommendations. That relationship can give an adviser considerable influence over financial decisions, particularly where the accounts are discretionary.

FINRA Rule 3241 regulates certain situations where a registered person becomes an investor’s beneficiary or assumes a position of trust, such as serving as executor, trustee, or power of attorney. Subject to limited exceptions, the registered person generally must notify the brokerage firm in writing and obtain the firm’s approval before assuming such a role.

When a broker or financial adviser exploits an elderly customer, the conduct may raise issues beyond elder financial abuse. Depending on the facts, an investor may have claims involving investment fraud, securities fraud, unauthorized transactions, improper investment recommendations, misrepresentations, conflicts of interest, or failure to supervise.

Determining whether ordinary investment activity or actionable misconduct caused the losses often requires a careful review of the account and the circumstances surrounding the transactions.

What Should Families Do?

Families who discover suspicious activity should act promptly. Recovering assets can become far more difficult after money leaves an investment account.

Investors and family members should preserve brokerage statements, transaction confirmations, emails, text messages, correspondence, and other records relating to the suspicious activity. They should also determine whether the investor designated a trusted contact and promptly notify appropriate financial institutions of suspected unauthorized activity.

When an investor has already suffered substantial losses, an attorney experienced in securities litigation and FINRA arbitration can investigate the account and evaluate whether potential claims exist against a broker, financial adviser, brokerage firm, or other responsible party.

The Bottom Line

Discovering that an elderly parent or loved one may have lost retirement savings to financial exploitation can leave a family asking difficult questions: Who took the money? Who knew what was happening? Could someone have prevented the loss?

A brokerage firm’s involvement in a transaction connected to financial exploitation does not, standing alone, establish liability. But significant warning signs may warrant further investigation.

An investigation may examine what the financial adviser knew, whether the brokerage firm detected suspicious activity, how the firm responded to warning signs, and whether its supervisory systems functioned as intended.

As FINRA continues to focus on protecting senior investors, these questions remain important for older investors and their families seeking to protect a lifetime of savings.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Mahdi M. Ibrahim can be reached in the firm’s San Diego office at (619) 696-9500.