The Benefits of a Trusted ContactOctober 15, 2019 Judith Ward, CFP®, Senior Financial Planner
- The financial services industry has implemented new rules to help protect vulnerable individuals from financial exploitation.
- One provision requires broker-dealers to make a reasonable effort to obtain the name of a “trusted contact” for their brokerage customer accounts.
- A trusted contact is an individual identified and selected by the account owner who can be contacted by the financial firm if something seems amiss.
- A trusted contact will not be able to act on the account and will not be able to transact on the owner’s behalf.
- As a protective measure, it’s preferable that the individual selected is not already authorized to act on the account.
Occasionally, I’ll walk into a room and forget why. Or my adult children will say, “Mom, you already told us this story” or “Mom, you just asked me that question.” It happens to all of us, but sometimes I wonder—am I a little forgetful or is it something more serious?
It's natural to fear age-related cognitive decline, but it might be less of a threat than you imagine, according to the Center for Retirement Research at Boston College study “Cognitive Aging and the Capacity to Manage Money.” The study finds that most people in their 70s and 80s will be able to manage their own finances despite normal cognitive changes associated with age. That’s great for the majority; however, individuals who develop a cognitive impairment (whether mild or more severe, like dementia or Alzheimer’s) may see a substantial reduction in their financial capacity and need someone to step in for them.
The research indicates that cognitive impairment is increasingly likely for those in their 80s and older. And the severity of the impairment increases with age. These individuals are usually unaware that their cognitive faculties are slipping and can become more vulnerable to financial exploitation.
Last year, the Financial Industry Regulatory Authority (FINRA) addressed these concerns by implementing new rules designed to help protect the finances of vulnerable individuals. One provision requires broker-dealers to make a reasonable effort to obtain the name of a trusted contact for their brokerage and other retail customer accounts.
A trusted contact is an individual identified and selected by the account owner who can be contacted by the financial firm if something seems amiss. For example, if the firm is concerned that the account owner is no longer able to handle their financial affairs, if the account owner cannot be reached, or if there is a reason to suspect fraud or financial exploitation, the firm is authorized to reach out to the trusted contact for guidance. Additionally, the financial firm can temporarily withhold the disbursement of funds or securities while any matters are being investigated.
The firm is authorized to share transaction information, specific securities, beneficiary designations, and the account owner’s contact information with this individual. So, it is important that the account holder select someone he or she fully trusts.
At the same time, the trusted contact will not be able to act on the account. This is a protective measure—and it’s preferable that the individual selected to be the trusted contact is not already authorized to act on the account. Unfortunately, financial exploitation is often committed by those who may be closest to the account holder.
Institutions that deal with clients on a regular basis may recognize changes in behavior or unusual account activity before family members or friends do. So, when you are tackling items on your annual to-do list, contact your financial institution to add a trusted contact to your brokerage and other investment accounts. Make sure your trusted contact knows about your directive as well. Designating such an individual to serve on your behalf provides another layer of account protection to keep you financially secure.
This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.
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