Orphan Accounts: A Powder Keg for the Financial Services Industry?

In October 2021, the Securities and Exchange Commission (SEC) fined Regal Investment Advisors $1.9 million for neglecting “orphan” accounts while charging fees. Orphan accounts are those that have been abandoned or neglected by financial services companies like RIAs, Insurance BDs, Asset Managers, etc. In Regal’s case, the SEC found that the firm had failed to provide any services to its orphan accounts for several years, while still charging them fees.

The SEC’s action against Regal is a sign that the regulator is taking a closer look at how firms are handling orphan accounts. And for good reason. Orphan accounts can be a powder keg for financial services companies. If not properly managed, they can lead to regulatory scrutiny, lawsuits, and even financial losses for the firm.

The Problem of Orphan Accounts

The problem of orphan accounts is not new. In fact, it has been around for as long as the financial services industry has existed. However, the problem is becoming more acute as the industry grows and ages.

There are a number of reasons why orphan accounts occur. In some cases, clients may die or become incapacitated without leaving instructions for their accounts. In other cases, clients may simply move away or lose interest in their investments.  However, what appears to be a larger source of the problem is the high attrition rate of financial advisors.  A lot of new advisors join the industry each year, sign as many clients as they can, and then unfortunately a high rate of these advisors are gone from either the company or industry entirely within the first 3 or so years.  We also know a lot of advisors don’t have a formal succession plan in place.  So what happens after all of this?  A lot of clients become orphan accounts and the firms are now stuck with a very large issue on how to best service them.

The Risks of Orphan Accounts

Orphan accounts pose a number of risks for the financial services industry. First, they can lead to regulatory scrutiny. The SEC has made it clear that it is concerned about the issue of orphan accounts. In recent years, the regulator has taken a number of enforcement actions against RIAs for mishandling orphan accounts.  Second, orphan accounts can lead to lawsuits. If a client believes that their orphan account has been mishandled, they may sue. This can be a costly and time-consuming process for the firm.
Third, orphan accounts can lead to financial losses. If an company is not properly managing its orphan accounts, it may lose track of the assets in those accounts.

Basics on How to Manage Orphan Accounts

There are a number of steps that financial services companies can take to manage orphan accounts effectively. First, they should have a system in place for identifying orphan accounts.  Most companies have this part already figured out. This system should be regularly reviewed and updated.
Second, companies should have a written policy for handling orphan accounts. This policy should outline the steps that they will take to protect the assets in orphan accounts and to comply with all applicable regulations.
Third, companies should regularly review their orphan accounts to ensure that they are being managed properly. This review should include checking to make sure that they have the most up-to-date contact information for the clients and that the assets in the accounts are properly invested.  While all of this makes sense on paper figuring out how to implement and manage it all is a much bigger challenge.

A scalable solution to manage the orphan account problem

I would argue that most of the industry would agree up to this point that there’s an orphan account problem, but how to solve the issue is a challenge in itself.  When a company has tens of thousand, hundreds of thousands, or even millions of orphan accounts how are they supposed to effectively and efficiently support them?  Hiring and training a call center team would take a long time and incur significant costs to the company.

What’s needed then is a scalable solution to diffuse the orphan account powder keg situation.  This is where a technology solution like Couplr can come to the rescue.  A company could leverage the Couplr technology solution by embedding it into their existing client facing experience.

Think of it this way.  I’m a client of company XYZ Financial.  My advisor left the company and I’m now considered an orphan client.  How great would it be if when I logged in to review my investments, insurance, etc. that there was a tool I could use to get matched with the best advisors for me at the company?  Or what if I received an email from the company telling me they noticed I no longer have an advisor representative and that I should “click here” to get matched with a new advisor that I will get along with?  Or maybe it’s a snail mail campaign with a QR code.  The list goes on.

orphan accounts find a new advisor

The point here is that companies can leverage a technology solution to reconnect with their orphan accounts in a way that’s scalable and efficient.  We can’t force orphan clients to work with a new advisor but surely giving them the option via a great experience is a step (leap?) in the right direction?


Orphan accounts are a powder keg situation for the financial services industry. If not properly managed, they can lead to regulatory scrutiny, lawsuits, and even financial losses for the firm. Companies should consider taking steps to identify, manage, and monitor their orphan accounts to mitigate these risks while looking at new and innovative ways to solve the problem by leveraging technology.

Best Regards,

Derek Notman