Sunday, October 14, 2007
The vulnerability of senior investors to investment scams has certainly been the recent focus of the SEC, the SROs, and the state securities regulators. The SEC's Seniors Summit, in particular, drew attention to the "Free Lunch" Investment Seminars and other high-pressure sales tactics. FINRA followed up with a Notice to Members reminding brokers and dealers of their suitability obligations in advising senior or disabled citizens. This has led some to assert that brokers will be held to a higher suitability standard in their recommendations and seniors have "special status." However, no one should be surprised by the regulators' statements. Both the courts and the regulators have long recognized that the broker's duty when he makes a recommendation includes making an investigation into the customer's circumstances to make certain the investment or the investment strategy is suitable for the investor. In addition, even if the broker does not himself make a recommendation to his customer, he may have a duty to warn the investor about investments that the investor is considering that are unduly risky for the investor. These well-recognized duties include an obligation to make certain that the investor understands the risks associated with any investment. There is no doubt that many brokers have viewed the ever-increasing number of senior investors who are dependent on their investment income as a source of revenue; the regulators and the industry should also make certain that these investors are not taken advantage of and can live their retirement years with dignity.