FINRA now requires that financial firms request "trusted contacts" from customers for fraud protection. In the event that the account holder becomes incapacitated or if fraud is suspected, the "trusted contact" can be relied upon.
Amid growing concerns about the financial exploitation of seniors, industry regulators have put an emphasis and focused rulemaking on the subject. As a result, firms including TD Ameritrade are now required to request that clients provide a “trusted contact” whom the firm can contact for several reasons, including but not limited to possible fraud or if an account holder appears to be incapacitated.
The rule—which was proposed by the Financial Industry Regulatory Authority (FINRA) and approved by the Securities and Exchange Commission (SEC) and became effective February 5, 2018—is designed to provide a greater degree of investor protection. The trusted contact can be a family member, such as an adult son or daughter, whose contact information will appear on an investor’s account.
Although having a trusted contact could conceivably benefit investors of all ages, it might be especially useful for seniors. Any investor could potentially be at risk, but the elderly often find themselves in more danger of financial exploitation and fraud. That’s because mature investors tend to have larger cash flows, feel embarrassment about being less capable to manage their own affairs, and have varying degrees of cognitive function.
"[The trusted contact rule] will provide firms with tools to respond more quickly and effectively to protect seniors from financial exploitation,” said Robert W. Cook, FINRA president and CEO, in a press release. “This project included input and support from both investor groups and industry representatives and it demonstrates a shared commitment to an important, common goal—protecting senior investors."
Financial abuse costs older Americans more than $2.6 billion annually, according to a MetLife study. Another study conducted by the New York State Office of Children and Family Services found that one in 13 older adults in the state had been victims of elder abuse in the previous year, with major financial exploitation reported at a rate of 41 per 1,000 surveyed.
The FINRA Trusted Contact initiative is an amendment to FINRA Rule 4512 (Customer Account Information).
Establishing a trusted contact gives financial firms someone they can call if they see signs that a client might be a victim of financial abuse or exhibiting signs of potential diminished mental capacity.
Although having a trusted contact could conceivably benefit investors of all ages, it might be especially useful for seniors.
“If we have concerns about a client related to diminished mental capacity, or the client being targeted by a [potential] scam, and have been unable to contact or work with a customer to resolve the situation, we may be able to reach out to a trusted contact and say, ‘We have concerns about your mom or dad. Have you noticed any changes?’ We want to make sure we get a trusted individual involved in the conversation,” said Matt Mahoney, of Senior Investor Oversight at TD Ameritrade.
“Before this [new rule], if an elderly client was exhibiting signs of potential diminished mental capacity or having trouble managing their financial affairs on their account, we were limited in who we could try to contact on their behalf. If we have a trusted contact, we can see if there’s something they can do.”
Financial firms are required to make a reasonable effort to obtain trusted contact information for accounts opened on or after February 5, 2018, and to request trusted contact information for existing accounts when periodically updating customer records as a part of routine business. Once a trusted contact is established, clients will receive written confirmation of the trusted contact information from TD Ameritrade.
Any information TD Ameritrade shares with a trusted contact will be limited, and the trusted contact doesn’t have authority over a customer’s account.
Financial firms like TD Ameritrade won’t be taking instructions from trusted contacts, and won’t ask trusted contacts to divulge information about a client unless it’s absolutely necessary and needed to help a client. In addition, TD Ameritrade will not provide trusted contacts with information regarding the customer’s account unless it is deemed entirely necessary based on the facts and circumstances of the situation. TD Ameritrade is conducting extensive internal training so its associates are properly prepared for this change.
However, the trusted contact is someone a member firm may contact and disclose certain information to address possible financial exploitation, confirm the specifics of a customer’s current contact information and health status, or the identity of any legal guardian, executor, trustee, or power of attorney.
As a TD Ameritrade client, you can reach out to the investment professional you work with if you’d like to have a trusted contact added to your account. Otherwise, expect TD Ameritrade to ask for a trusted contact in the future as it conducts normal business with you.
Dan Rosenberg is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.
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*The Trusted Contact requirement does not apply to “Institutional Accounts” as defined by FINRA 4512. Per FINRA 4512, an "institutional account" shall mean the account of: (1) a bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.
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