Do you have a ‘trusted contact person’?
While the concept of a “trusted contact person” has been around since 2018, regulators are currently encouraging brokerage firms to ask you to name yours. The goal? To provide you with “additional protection.” This is what you need to know.
“Trusted contact” is a term used in FINRA’s customer account information rule (rule 4512(a)(1) (F)), which you can view at tinyurl.com/uy66acjk. FINRA, the Financial Industry Regulatory Authority, regulates the brokerage industry.
Under the rule, when you open an account (or update it), the brokerage firms must ask you for the name of a trusted contact. You have the option of saying yes or no.
The goal is to give authority to the firm to talk with someone about your account in case of a problem — perhaps the brokerage firm lost contact with you due to a natural disaster, or there is concern about potential fraud.
Because brokerage firm policies can differ, read your firm’s brokerage agreement to see when it will share information with the trusted contact.
In this example, you authorize the firm to reach out to your trusted contact:
“If there are questions or concerns about [your] whereabouts or health status;”
“If [the firm] suspects that [you] may be a victim of fraud or financial exploitation;”
“If [the firm] suspects that [you] might no longer be able to handle [your] financial affairs;”
“To confirm the identity of any legal guardian, executor, trustee, authorized trader, or holder of a power of attorney;”
“If [the firm] has any other concerns or is unable to contact [you] about [your] account(s) held at [the firm].” (Also see this Securities and Exchange Commission’s Investor Bulletin at tinyurl.com/8yb4f42r.)
You would be giving authority to the firm to judge when these circumstances arise.
What information might the brokerage firm share with your trusted contact?
Again, read your brokerage agreement.
In this example, the firm can share “nonpublic personal information.” That includes “financial account information and balances, recommendation for purchase of a security or insurance product, and ... personally identifiable financial information (i) provided by a consumer to a financial institution; (ii) resulting from any transaction with the consumer or any service performed for the consumer; or (iii) otherwise obtained by the financial institution.”
Why would the firm do this? “To address possible financial exploitation; to confirm the specifics of [your] current contact information or health status or the identity of any legal guardian, executor, trustee, or holder of a power of attorney; or as otherwise permitted by FINRA rules.”
Well enough. What happens next? Are there limits on the authority of a trusted contact?
Indeed, there are. The person “cannot make trades in the investor’s account; cannot make decisions about the investor’s account; and does not become a power of attorney, legal guardian, trustee or executor by virtue of being identified as a trusted contact,” according to a joint release (tinyurl.com/pkhse8k8) issued by FINRA and the North American Securities Administrators Association.
One more thing: When you provide a trusted contact, you may also be agreeing to indemnify the firm if something goes wrong. Here is an example: You indemnify the firm “from and against any and all claims, judgments, taxes, fines, penalties, damages, liabilities, costs, and expenses” related to “any claim, judgment, or proceeding arising out of or relating to [the firm] contacting, or failing to contact,” the trusted contact.
What can go wrong? I can only guess. What can go right? Potentially preventing fraud.
The concept of protecting a customer is laudable. How well this works will depend on the circumstances, including the brokerage firm’s protocols after engaging with the trusted contact. If you have any experiences you want to share with my readers, write to me at readers@juliejason.com.
For more information on the subject go to finra.org/trustedcontact, which includes an explanatory video.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2020 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.