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June 28, 2023 at 01:27 PM
What You Need to Know
- A recent FINRA Foundation survey found that only 38% of investors reported having authorized a trusted contact.
- Misunderstandings of what a trusted contact can and can’t do are one reason, says Jim Wrona.
- Many investors mistakenly think a trusted contact can make trades in, or decisions on, their account.
While the broker-dealer industry is making strides at getting customers to appoint a trusted contact for their investment accounts, more work is needed, a Financial Industry Regulatory Authority exec says.
A FINRA Investor Education Foundation survey in December found that only 38% of respondents reported having authorized a trusted contact — a number that’s too low, Jim Wrona, vice president and associate general counsel at FINRA, said during a recent FINRA podcast.
“A trusted contact will be vital when you have a customer that’s a victim of financial abuse or that might be suffering from diminished capacity,” he said.
Two FINRA rules were set up in 2019 to address the issue — FINRA Rule 4512 (Customer Account Information) and FINRA Rule 2165 (Financial Exploitation of Specified Adults).
FINRA Rule 4512 requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact.
“The trusted contact person is intended to be a resource for the member in administering the customer’s account, protecting assets and responding to possible financial exploitation,” according to FINRA.
In December, FINRA issued Regulatory Notice 22-31 to emphasize the importance of trusted contacts.
FINRA Rule 2165 “permits a member that reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted to place a temporary hold on a securities transaction or disbursement of funds or securities from the account of a ‘specified adult’ customer.”
Some firms “have prioritized this [trusted contact] issue, and they’ve been very successful at getting positive response rates” from clients, Wrona said on the podcast. “But to be frank, there’s a level of commitment by firms that varies. So, at some firms there hasn’t been enough emphasis on the importance of trusted contacts.”
