Protecting Senior Investors: What is a Trusted Contact?

Protecting Senior Investors: What is a Trusted Contact?

Posted by Clay Schmidt on Aug 31, 2020


In February of 2018, the Financial Industry Regulatory Authority (FINRA) adopted a new rule regarding the financial exploitation of specified adults. Rule 4512 requires brokerage firms to ask their clients to provide the name and contact information for a trusted contact person. A trusted contact is someone that you allow your brokerage to contact in certain circumstances such as possible financial exploitation, fraud, or if your broker-dealer cannot reach you. 

This new rule allows suspicions of exploitation and fraudulent activity to be quickly addressed to protect unaware investors. Seniors are the most vulnerable to financial exploitation and it’s a growing problem in the U.S.

Elder Fraud

Elder fraud is rampant in the U.S., and millions of seniors are subject to financial exploitation each year. The National Council on Aging estimates that financial abuse costs seniors up to $36.5 billion annually. Common financial scams include:

  • Romance: Scammers pretend to be romantic partners through social media or dating sites to gain trust.
  • Grandparent: The scammer will pose as a relative in financial need.
  • Government impersonation: The criminal poses as a government official demanding funds or payment over threats of prosecution. 
  • Medicare/health insurance: By pretending to be a Medicare representative or insurance agent, scammers can get access to personal information.
  • Email/phishing: Emails appearing to be from a reputable company asking to verify personal information.
  • Investment scheme: Seniors are the target of investment schemes once they have access to their 401(k) or IRA

Most cases of senior financial fraud go unreported, and it’s a big concern that regulators want to get under control. 

The Role of the Trusted Contact

Not everyone needs a trusted contact person. This new rule only requires that your brokerage firm asks for a trusted contact for those over the age of 65, but having one is not mandatory. When fraud is expected or if there’s concern about your health or well-being and your financial firm is unable to contact you, your trusted contact is called. With a trusted contact and under Rule 2165, a temporary hold can be placed on your account to prevent additional fund loss.

Your trusted contact is only a point of contact. They cannot gain access to your account, and they don’t have the power to make transactions. The role of your trusted contact is to safeguard your accounts and funds. 

Choosing a Trusted Contact

Pick a trustworthy, responsible person with your best interest at heart. Your trusted contact cannot access your accounts, but under certain circumstances, they may be given specific information about you. 

You need to be comfortable with this person possibly knowing about your mental state, competency, or other medical issues. According to FINRA and under Rule 4512, your trusted contact could be asked for additional contact information or if they have any suspicions of Alzheimer’s disease, dementia, or other forms of mental impairment. Due to the increased chances of impairment from aging, it’s suggested to choose someone younger and not a spouse or sibling. 

Although it’s not required, naming a trusted contact person is for your own protection. The numbers in elder financial exploitation cases are alarming, and experts have called it “a burgeoning public health crisis.” It’s a complicated and sensitive topic that needs to be discussed with your broker-dealer.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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