In February 2018, the Financial Industry Regulatory Authority (FINRA), one of the chief regulators of financial advisors and investment professionals, enacted a rule that has been wonderful for clients and the firms themselves. The “Trusted Contact” rule requires all registered financial industry persons to ask a client if they would like to name a person their “trusted contact”.
What is a trusted contact?
A trusted contact is a person selected and named by a client who the firm may contact in very limited circumstances. An example of those limited circumstances would be if there is a concern about activity in a client’s account and the firm has been unable to get in touch with the client. A trusted contact could be a family member, attorney, accountant or anyone else the client believes would respect the privacy of the person and know how to handle the responsibility. Some people may choose to name more than one trusted contact. FINRA suggests that anyone who has an investment account should name a trusted contact.
Naming a trusted contact adds another layer of safety on an account and puts the financial services firm in a better position to help keep client accounts safe. It also helps the firm and financial advisor make sure the client is safe.
What naming a trusted contact doesn’t do:
It does not give that person (the named trusted contact) any authority to act on a client’s behalf, execute transactions or engage in any activity in the client’s account. In fact, just because a person is named a client’s trusted contact does not preclude the requirement of confidentiality on the part of the investment firm or financial professional. No details of the client’s financial condition, assets, balances, investments or literally any account information can be discussed with the trusted contact.
When will a firm/financial advisor contact the trusted contact?
Only in very limited circumstances. One such example is when your financial advisor is unable to reach a client in a reasonable amount of time. If a client that has always been prompt in returning calls hasn’t been answering their phone and hasn’t returned numerous voicemail messages, your financial advisor would be able to call in the named trusted contact to learn if the client is simply traveling, or is perhaps having a negative life event. When this scenario occurs, it allows us to understand the client’s circumstance and hopefully assist them. This also allows us to resolve any issues in their financial affairs in a timely manner.
Another example of trusted contact use is when an indirect client contact is made to us, such as a vague email or unusual voicemail message. All financial advisors are forbidden from taking or accepting transaction instructions from a client unless confirmed directly by voice. When we receive an email or voicemail request for funds to be sent out, or a transaction request in an account, it must be confirmed directly with the client by phone or in person. When we receive an email or voicemail with a request for funds or trades in a client account, we immediately attempt to reach the client by phone. If we are unsuccessful in talking directly with the client in a reasonable period of time, we can attempt to locate the client through their named trusted contact. As I stated previously, we cannot discuss the particulars with the trusted contact of why we are needing to talk with the client. We are merely using the trusted contact to learn of the whereabouts of the client and how we might reach them. In this day and age of email scams, identity theft, etc., it is easy to imagine that there are some people that want to take advantage of others. One of our key priorities is to safeguard and protect our clients. When we learn someone is attempting to take advantage of our client, we immediately take steps to protect them by restricting their account and also report the incident to the proper authorities.
How to name a trusted contact:
All financial services firms have forms that discuss all the parameters of the trusted contact program including the limitations of the trusted contact’s authority – which is only to help the firm reach or help the client through the trusted contact when unable to reach the client by normal means.
My practice has used the trusted contact initiative to discuss with our clients and encourage them to not only name trusted contact(s) with our firm, but also with their family members, friends and other business relationships. For many years, my practice has served as the informal trusted contact for lots of clients whose children live far away. It is not unusual for my office to receive a phone call from a far-flung adult child asking if we’ve seen their mom or dad lately. Many of our clients like to travel and play. Sometimes they forget to tell their grown children. Sometimes, they don’t forget. They just want some free time.
I hope trusted contact is a concept that will be helpful for you. If we can be of help to you in any way, please feel free to call on us. That’s what we do: Help people.
-by Ben Smith
Registered Principal, RJFS
313 East 10th Ave. • Bowling Green, KY 42101 • Phone: 270-846-2656
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.
Ben Smith Life Compass Financial is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.
