Democrats in Senate See Problems with Broker Inheritances from Clients
Stock brokers may no longer be permitted to receive bequests from clients.
Four United States Senators have sent a letter to the CEO of securities industry regulator FINRA asking the agency to bar stock brokers from client wills. Lead by Democratic Senator Catherine Cortez Masto, the Senators have sought to curb elder financial abuse by financial advisors who illegitimately appear in client wills. The move by the legislators came as a result of a Maryland broker receiving $500,000 from a client who was suffering from dementia and had been living in a nursing home.
Conflicts of Interest Abound in Client Bequests to Brokers
In their letter, the Senators pointed out that client bequests are “inherently problematic” because of the conflict of interest they introduce between what is best for the client and what is best for the stock broker. In addition to the conflict of interest, especially with elderly or infirm clients, there is a great risk that financial advisors will exploit their clients dependency on them or even their reduced competency to secure a bequest.
Currently, FINRA’s rules on client bequests to financial professionals do not prohibit them. The Senators pointed out that the regulator’s lack of explicitness when it comes to whether or not they will allow brokers to receive bequests has created a gray area that may be exploited by the unscrupulous or predatory. Asking for firmer rules and regulations, including a prohibition with provisions for returning any requests and fines for firms who disobey the rules, the lawmakers have sought to bring clarity to a heretofore overlooked area.
