Appointing a Trusted Contact for Investments Advised by Government Agencies
The Federal Bureau of Investigation’s (FBI) Internet Crime Complaint Center (IC3) receives and tracks thousands of complaints of fraud each day and then investigates those complaints, ultimately holding thieves accountable for their crimes. When people enter their reports online they have the option of specifying the victim’s age. From analyzing this data, the FBI determined that of the 791,790 complaints received in 2020 approximately 28 percent of the $4.1 billion in total losses reported were incurred by victims over the age of 60.1 That is over $1 billion in losses to seniors.
The analysis also found that fraud perpetrated against seniors grew by $300 million from 2019 to 2020. The prevalence of fraud against seniors, and investment fraud in general, has prompted several financial regulatory groups to increase their efforts to urge all investors to appoint a trusted contact for all their investments.
On September 28, the Financial Industry Regulatory Authority (FINRA), the North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) joined together to institute a new campaign “urging investors to provide their financial firms with a trusted contact.”2 The webpage devoted to this issue can be found here.3 FINRA has had a requirement, Rule 4512, which pertains to customer account information and requires FINRA members to ask investors for their trusted contact person when an account is opened or updated, provided it is a non-institutional account.4 FINRA has had this requirement in place since February, 2018, however while a FINRA brokerage firm member is required to ask for a trusted contact, it is not mandatory for an investor to provide a trusted contact person in order to open or update an account.
When they instituted the trusted contact requirement, FINRA also began allowing brokers to put a temporary hold on a requested account withdrawal if financial exploitation is suspected.5 A broker would then reach out to the trusted contact with their concerns if a trusted contact had been named by the account holder.
Here are the facts on the trusted contact recommendation:
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- It is suggested by FINRA, NASAA, and the SEC that anyone who has an investment account should name a trusted contact. Having a trusted contact puts another layer of safety on an account.
- The September 28, 2021 news release from the three agencies defines a trusted contact as, “an individual authorized by an investor to be contacted by their financial firm in limited circumstances.”
- A trusted contact must be 18 years or older.
- A trusted contact can be a family member, attorney, accountant or another third-party who you believe would respect your privacy and know how to handle the responsibility and you can name more than one trusted contact for your investment accounts.6 If you choose someone in a professional capacity, such as your attorney or accountant or another professional, that person would most likely be bound by their profession to have accountability to act ethically.”7
- You can add or change a trusted contact at any time.
- Naming someone as a trusted contact does not give that person any authority to act on your behalf, execute transactions or engage in activity in your account.8
- For the elderly, it is prudent to appoint a trusted contact before any cognitive issues arise and to tell family members who they appointed as the trusted contact.
Circumstances where your broker may contact the trusted contact include situations where they suspect financial exploitation when a withdrawal is made from the account; situations where your broker can’t get in touch with you (such as when traveling); situations where you have had to seek temporary housing (such as during a natural disaster); times when you can’t be reached because you are in the hospital or a rehabilitation facility or recuperating with a friend or relative; or anytime a broker may be concerned about fraud.
In situations like these and others, a broker will get in touch with your trusted contact to confirm how they can reach you, inquire about your health status, and/or ask the identity of any legal guardian, executor, trustee or holder of a power of attorney.9
If you have questions about what appointing a trusted contact means, contact your broker or use the resources listed on the webpage devoted to trusted contacts here.10
Safeguarding your investments parallels protecting your rights as an investor. This includes mismanagement of investment accounts or investment fraud. Financial advisors and brokers misdirect money all the time by making unsuitable recommendations and over trading client accounts. Broker misconduct creates lasting damage to a client’s financial health and future. An experienced Securities Attorney can help investors recover their losses and hold negligent brokers accountable.
Our Securities Law Firm in Detroit has been fighting for investor’s rights for more than 20 years. If you think your investment accounts have been compromised or mismanaged, contact our Michigan Securities Firm today and speak with an attorney.
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1 FBI Internet Crime Complaint Center
Link: https://www.ic3.gov/Media/PDF/AnnualReport/2020_IC3ElderFraudReport.pdf
2 Press Release: FINRA, NASAA and SEC OIEA Urge Investors to Establish a Trusted Contact to Increase Investor Protection, 9/28/2021
Link: https://www.finra.org/media-center/newsreleases/2021/finra-nasaa-and-sec-oiea-urge-investors-establish-trusted-contact
3,6,8,9,10 Establishing a Trusted Contact
Link: https://www.finra.org/investors/learn-to-invest/brokerage-accounts/establish-trusted-contact
4 FINRA Rule 4512. Customer Account Information
Link: https://www.finra.org/rules-guidance/rulebooks/finra-rules/4512
5,7 Advisors are Asking their Clients For a Trusted Contact. Choose Wisely. by Sarah O’Brien, 5/15/2018
Link: https://www.cnbc.com/2018/05/15/advisors-are-asking-their-clients-for-a-trusted-contact-choose-wisely.html