Trusted Contact Persons

Regulatory Obligations and Related Considerations

Regulatory Obligations

FINRA Rule 4512(a)(1)(F) (Customer Account Information) requires member firms, for each of their non-institutional customer accounts, to make a reasonable effort to obtain the name and contact information for a trusted contact person (TCP) age 18 or older. FINRA Rule 4512 also describes the circumstances in which member firms and their associated persons are authorized to contact the TCP and disclose information about the customer account.

FINRA Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) requires a registered person to decline being named a beneficiary of a customer’s estate, executor or trustee, or to have a power of attorney for a customer unless certain conditions are met, including providing written notice to the member firm and receiving approval. The rule requires the member firm with which the registered person is associated, upon receiving required written notice from the registered person, to review and approve or disapprove the registered person assuming such status or acting in such capacity.

FINRA Rule 2165 (Financial Exploitation of Specified Adults) permits member firms to place temporary holds on a disbursement of funds or securities and—as of March 2022, securities transactions—when firms reasonably believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted, and requires firms to notify the TCP, if available, when placing temporary holds.

Related Considerations

  • If your firm allows registered persons to be named to positions of trust, such as an executor or trustee, or as beneficiaries for customer accounts, has it established a process for conducting a reasonable assessment of the risks created by the registered person assuming such status or acting in such capacity?
  • Has your firm established an adequate supervisory system, including WSPs, related to obtaining and using the names and contact information of TCPs; and, if relying on FINRA Rule 2165, placing temporary holds to address risks relating to financial exploitations?
  • Does your firm educate registered representatives about the importance of collecting and using trusted contact information?

Findings and Effective Practices

Findings

  • No Reasonable Attempt to Obtain TCP Information: Not making a reasonable attempt to obtain the name and contact information of a TCP for all non-institutional customers (e.g., seeking to obtain this information only from senior non-institutional customers, not requesting this information within the firm’s regularly scheduled 36-month customer account records update letter).
  • No Written Disclosures: Not providing a written disclosure explaining the circumstances under which the firm may contact a TCP when seeking to obtain TCP information (e.g., when a customer opens a new non-institutional account or when the firm updates an existing account’s information (in accordance with FINRA Rule 4512(b)).
  • No Documented Training: Relying on FINRA Rule 2165 but not developing and documenting training policies or programs reasonably designed to ensure associated persons comply with the requirements of the rule.
  • No Documented Internal Review: Relying on FINRA Rule 2165 but not retaining records that document the firm’s internal review underlying the decision to place a temporary hold on a disbursement or transaction.
  • Attempted Circumvention of FINRA Rule 3241: Registered persons attempting to circumvent the rule’s requirements by having customers name the registered person’s spouse or other family members as beneficiaries for customers’ accounts.

Effective Practices

  • Training: Conducting training, for both front office and back office staff, on the warning signs of potential: (1) customer exploitation; (2) diminished capacity; or (3) fraud perpetrated on the customer.
  • Escalation Process: Implementing and training registered representatives to use a comprehensive process to escalate issues relating to seniors, including but not limited to concerns about financial exploitation, diminished capacity or cognitive decline.
  • Emphasizing the Importance of TCP and Promoting Effective Practices:
    • Emphasizing at the senior-management level on down the importance of collecting TCP information.
    • Using innovative practices, such as creating target goals for collecting TCP and internally publicizing results among branch offices or regions.
    • Promoting effective ways of asking for TCP information and seeking feedback from registered representatives and supervisors on techniques that they have successfully used that have not already been publicized across the organization.
    • Establishing a system that notifies registered representatives when accessing non-institutional customer accounts that do not have a TCP listed and reminds them to request that information from customers.
    • Providing guidance to registered representatives regarding contacting TCPs when the firm places a temporary hold.
  • Senior Investor Specialists: Establishing specialized groups or appointing individuals to handle situations involving elder abuse or diminished capacity; contacting customers’ TCPs—as well as Adult Protective Services, regulators and law enforcement, when necessary—and guiding the development of products and practices focused on senior customers.
  • Firm Outreach: Hosting conferences or joining industry groups focused on protecting senior customers.

Additional Resources

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1 Session recordings from the 2023 FINRA Senior Investor Protection Conference are available for viewing by FINRA member firms and CRCP graduates. Please see FINRA’s Conferences and Events page for a list of recorded sessions, and directions for accessing them.