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FINRA official stresses importance of appointing a trusted contact

On Behalf of | Jul 5, 2023 | FINRA Compliance

An executive with the Financial Industry Regulatory Authority stressed the importance of customers appointing a trusted contact for their investment accounts, according to ThinkAdvisor.

FINRA’s vice president and associate general counsel Jim Wrona discussed the topic during a recent FINRA podcast.

FINRA Rule 4512 requires member firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person for all non-institutional customer accounts. The trusted contact is intended to be a resource for the member firm in a host of situations, including being a resource for the member in administering the customer’s account, protecting assets and responding to possible financial exploitation.

But on the podcast, Wrona cited a FINRA Investor Education Foundation survey which found that only 38% of respondents reported having authorized a trusted contact. He said there had not been enough of a commitment by member firms to get customers to provide the contact.

“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,” Wrona said. He cited the need for firms to provide education about what a trusted contact can and cannot do. For example, Wrona said the role does not involve making decisions about the customer’s account or acting as power of attorney, legal guardian or trustee.

But he pointed out that trusted contacts can be vital in preventing financial exploitation, especially in fraud cases such as romance scams. “Having a trusted contact, having another person as an ally to help convince the customer that they are being victimized is really, really important,” Wrona said.

Under FINRA Rule 2165, firms that believe financial exploitation has occurred are permitted to place a temporary hold on a securities transaction or disbursement of funds from a customer’s account.

In December 2022, FINRA issued Regulatory Notice 22-31 in which the authority discussed the benefits of trusted contacts in administering customers’ accounts, highlighted customer education resources and shares effective practices member firms use for obtaining customers’ trusted contacts.

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