Do You Need A ‘Trusted Contact’ To Help Protect You?

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Has your financial firm recently inquired about naming you a “trusted contact”?

The Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASA), as well as the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy (SEC OIEA), have recently launched a new initiative to encourage financial firms. has been attempted. Reaching out to your clients is to name them a trusted contact as a means of increasing investor protection.

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FINRA President and CEO Robert Cook assumed the position. Everyone Must have a trusted contact: “All investors can benefit from adding a trusted contact to their account – having one or more trusted contacts adds another layer of security to the account and helps the financial firm keep the account secure.” Keeps it in better shape.”

But what exactly is a reliable contact? And what are the limits of reliable contact?

asking about a trusted contact

The “trusted contact” concept came to the fore in 2018, when FINRA, which regulates the brokerage industry, added amendments to it. Customer Account Information Rule 4512 Brokerage firms are required to ask their retail clients to provide a name and contact information for a trusted contact person. The amendments came at the same time as a new FINRA rule, 2165, allowing members to place a temporary moratorium on the disbursement of funds or securities from a client’s accounts when there was a reasonable belief that the client was financially exploited.

The amendments made to Rule 4512 do not prohibit a firm from opening or maintaining an account if the customer Did No Provide a reliable contact. While the firm is required to ask, the customer has the right to refuse to provide such information.

What is the Role of a Trusted Contact Person?

The idea behind a trusted contact person is to give the firm a chance to contact you about your account if a problem occurs – for example, the firm is having trouble contacting you, or the firm There is concern about possible fraud related to your account. Cause.

FINRA “A trusted contact can be a family member, attorney, accountant or any other third-party who you think will respect your privacy and know how to handle the responsibility,” it says.

What can be discussed with a trusted contact? While the proposed amendments were under consideration, SIFMA (Securities Industry and Financial Markets Association) provided a letter of comments, stating at one point that FINRA “should not limit specific information that can be discussed with a designated trusted contact as it may inadvertently serve the FINRA member firm’s ability to best serve its unique and differentiated clients.” Further, as a Trusted Contact is, as its name implies, a Designated Contact who is inherently trusted by the person (and has no right to trade on the Client’s account) There is no risk that any reasonable disclosure would violate a customer’s trust or give rise to any material issue.”

Shortly after FINRA implemented the new rule in 2018, the SEC issued Investor Bulletin on Trusted Contacts, In it, the SEC listed “[s]There are a few reasons your brokerage firm may want to contact a trusted contact person.” They included:

  • Addressing potential financial exploitation or fraud on your account.
  • Verifying your current contact information in case your brokerage firm cannot reach you.
  • Confirming your current health condition, if your brokerage firm suspects that you are ill or suffering from reduced potency.
  • Verifying the identity of any legal guardian, executor, trustee or holder of the power of attorney on your account.

Here’s an example of a trusted contact form for a firm: “I understand that [the firm] or my advisor may contact trusted contact person(s) and disclose information about my account to address potential financial exploitation; to confirm my current contact information or health status or the identity of any legal guardian, executor, trustee, or holder of a power of attorney; or otherwise permitted by FINRA regulations.”

Despite this broad grant of disclosure to a trusted contact, there are limits to what a trusted contact can do. Doing,

A joint release by FINRA, NASAA and SEC OIEA stated that Trusted Contact “Cannot” trade on the account of the investor; cannot make judgments about the investor’s account; And being identified as a trusted liaison does not constitute a power of attorney, legal guardian, trustee or executor.”

Should you take action?

Before saying “yes” to naming a trusted contact, it would be wise to review your firm’s trusted contact form to see what you agree with.

For example, a firm’s credible contact document indicates that it may share “non-public personal information”, including “financial account information and balances, recommendations for the purchase of a security or insurance product, and.. Personally Identifiable Financial Information includes (i) a consumer to a financial institution; (ii) as a result of any transaction with the consumer or any service performed to the consumer; or (iii) otherwise the financial institution received by.”

There seems to be a lot to be shared by that firm.

Another thing to look for: Trusted contact forms may have a provision that compensates the firm in case something goes wrong. Here’s an example:

“By signing below, I and my heirs agree to indemnify and hold [the firm] … are harmless from any and all claims, judgments, taxes, fines, penalties, damages, liabilities, costs, and expenses (including, but not limited to attorneys’ fees and expert witness fees) made by … [the firm] arising out of or relating to any claim, judgment, or proceeding [the firm] Contacting, or failing to contact, my trusted contact person(s) identified in this form.”

Before signing on a trusted contact form, you need to make sure that your contact is the same – trusted. You also need to understand what you agree with, and be sure to ask the firm questions if you’re unsure of anything.

Ideally, a trusted contact can be an effective way to protect the investor and prevent fraud. But it’s up to you to make sure you’re comfortable with the details – and with your trusted contact.

FINRA provides more information about trusted contacts, including a video.


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