Why Name a “Trusted Contact”

Why name a “Trusted Contact”

Do you need a Trusted Contact? Not everyone needs one, as cozy and protective as it sounds. We suggest that you take this step with intention and careful thought, not just because the custodian sends you a form to name someone.

In an effort to prevent senior financial fraud, FINRA (the Financial Industry Regulatory Authority) created a rule to allow custodians to ask seniors – those over 65 –  for the name of a Trusted Contact. This Trusted Contact would be listed on your accounts as someone to talk to in case of suspicious activity. All new account opens must now include the option to name such a person.

“The trusted contact is intended to be a resource for the member in administering the customer’s account, protecting assets and responding to possible financial exploitation,” FINRA says.

Important to know, your Trusted Contact does not become a joint owner, nor do they have authority over your accounts.

Elder fraud

The extent to which the elderly are targets of fraudulent schemes and abuses is hard to quantify, but it certainly is widespread. An estimated one out of every five seniors is likely to be a target. Losses run close to $3 billion annually, although only 1 in 44 cases are believed to be reported, suggesting that the real total could be closer to $125 billion a year.

Before the FINRA rule was adopted, privacy laws limited what a financial institution could disclose to a relative or friend of a client when it suspected a problem. Disclosing information to a third party, even a close relative, might actually cause the very financial disaster you’re trying to prevent; that person could be the financial predator, and disclosure might only enhance the predator’s ability to take advantage of you. (More than half of senior financial fraud is perpetrated by people close to the seniors, often caregivers.)

The FINRA rule permits, but doesn’t require, a financial institution to contact your Trusted Contact to warn of possible financial abuse or other red flags of suspicious irregularities. In so doing, it may discuss very confidential information about you and your account, including possible medical issues (such as dementia or other incompetency). If the institution has a reasonable belief that you are being defrauded or subject to financial abuse, it is authorized to temporarily suspend any distributions while it investigates the situation. If it does that, it is required to inform your Trusted Contact.

Duties and obligations

As with most things, there are downsides as well as upsides to the new rule. Surprisingly, the new rule does not require that Trusted Contacts be notified that they are designated or require that they agree to serve. It does not outline the duties and obligations or whether that person should be compensated. We suggest that you talk to anyone you want to list as Trusted Contact, to make sure that person understands what you expect of them and that they are willing to serve. You should also make clear what you want them to do with any information the financial institution provides them.

Should you name a Trusted Contact?

To do so, you must be comfortable with the idea that the financial institution may disclose to your Trusted Contact, or get information from them, about your mental state, competency, and other medical issues. You must also be willing to let the institution provide them complete financial information about your accounts.

It could be best to choose someone younger because of the risk that a person your own age might also become impaired by the problems of aging. For this reason, your spouse or sibling may not be the best choice. It should be someone you trust to do the right thing, who can take on the responsibility for your privacy and use good judgement if issues were to arise.

“Rule 4512 identifies reasonable categories of information that may be discussed with a trusted contact, including information that will assist a member in administering the customer’s account. For example, consistent with the disclosure, if a member has been unable to contact a customer after multiple attempts, a member could contact a trusted contact to inquire about the customer’s current contact information. A member also could reach out to a trusted contact if it suspects that the customer may be suffering from Alzheimer’s disease, dementia or other forms of diminished capacity. A member could contact a trusted contact to address possible financial exploitation of the customer before placing a temporary hold on a disbursement,” FINRA said in a discussion about the new rule.

More information

Call us to set up a time to talk about this rule if you have questions. It is likely to bring up many issues of family dynamics, transparency, independence and trust.

Here are some recent legal battles highlighting the need for a Trusted Contact:

  • Mary, a 68-year-old woman suffering from dementia, was convinced by a fraudster to purchase a $300,000 security system with withdrawals from her investment account. After the first cash withdrawal was made, Mary told her financial advisor to liquidate securities. The financial advisor advised Mary not to sell, but she insisted he do so because she was having a “financial emergency.” The next month, when the advisor learned that the funds were being used for a security system, he cautioned Mary to get a relative involved or go to the police – both of which she refused to do. Within two months, Mary had withdrawn $300,000 from of her account to purchase the security system.
  • A senior client in California who fell victim to a lottery scam instructed his bank to liquidate his assets to transfer money to bank accounts in different countries for a new friend. His banker was worried about his state of mind but took his direction and made the transfers.
  • An 82-year-old New Jersey woman asked to wire $330,000 from her bank account to third-parties out of the state and in Costa Rica in 27 different transfers over a six-month period. She had never made such transfers before. The institution made the transfers.

Could a Trusted Contact have prevented these losses? Perhaps not, but it would have provided some sort of a back-stop. To name a person with whom advisors can legally discuss these types transactions, and make it known to them that they have suspicions, could make a difference.

It’s a complicated issue. As one widow wryly noted, she would not want to name a Trusted Contact because she said she wouldn’t want her children or friends to know if she were to make gifts to a new romantic interest. What would you want in that situation? Let’s talk about it.

You can find out more information directly here: http://www.finra.org/industry/frequently-asked-questions-regarding-finra-rules-relating-financial-exploitation-seniors


Blue Spark Capital Advisors

We're a fee-only Registered Investment Advisory and financial planning firm based in New York City and the Berkshires.

We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.


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– Samuel Johnson (1709-1784)