Your Trusted Contact: a new friend for Financial Protection

Patrick McFadden, CFP®, CIMA® CPM® | May 11^th 2023

In March 2020, at the height of Covid the SEC introduced the “Trusted Contact” concept on its website. According to the SEC, a "trusted contact person" is a person that you authorize your brokerage firm to contact in limited circumstances. When you open a new retail account or update your account information, your brokerage firm will request that you give them the name and contact information of a "trusted contact person." You don't need to do so – but there are several fundamental reasons to give your broker the name of someone you trust. The SEC's Office of Investor Education and Advocacy and FINRA urge you to consider the request.

If your brokerage firm suspects you are experiencing a health issue, adding a trusted contact person to your account may help your broker confirm your current health status.
Adding a trusted contact person to your brokerage account may help your brokerage firm verify the identity of any legal guardian, executor, trustee, or holder of a power of attorney on your account.

What is a "trusted contact person?" A "trusted contact person" is someone you authorize your brokerage firm to contact in limited circumstances, such as if your broker has trouble reaching you or has a reasonable belief that your account may be exposed to possible financial exploitation.

As we get older, it's possible that we will become more susceptible to scams and fraud. That's why it's important to have someone you can trust to act as a sounding board and to safeguard against these risks. That's where a Trusted Contact comes in. A Trusted Contact is someone you designate; it's a person with whom you share with your financial advisor. The goal is to help protect you against financial scams, alert you to potential financial exploitation, and who may work with your financial advisor or other professionals to help safeguard your financial well-being.

What is a Trusted Contact?

A Trusted Contact is someone you designate to assist you when it becomes necessary; to work through long-term health issues or the challenges we can face in today's ever-changing technical and financial landscape. It might be as simple as knowing how to protect yourself when you receive a notice from your credit card company that your ID information was stolen or how to confirm whether a lesser-known charity is legitimate, to something simple like regular bookkeeping to make sure your bank and credit card statements aren't showing up with charges for something you never ordered. The idea is to help protect you from financial fraud. They are not a fiduciary, nor are they responsible for managing your investments. Instead, they are someone who knows you well, someone you speak with regularly or semi-regularly, and someone who has a good sense of the values and goals you want to achieve. Examples of Trusted Contacts include a close family member, neighbor, friend, financial advisor, or your tax preparer.

Why You Need a Trusted Contact

As we get older and live longer, and society embraces new ways of doing things, a Trusted Contact can provide several benefits. It's not just about health. They can help you recognize new types of financial fraud, scam phone calls, or scan emails requesting money. They can also help provide peace of mind, knowing you have someone in which you have confidence and who is looking out for your financial well-being. The need for a Trusted Contact is growing just about as fast as the pace of new technology. Simply knowing you have someone in your corner if only to discuss some suspicious transaction or poorly detailed activity on an account, is worthwhile. In that case, a simple call to discuss the issue, where they can alert you to their opinion on issues to help you take the appropriate steps to address them.

How to Choose a Trusted Contact

Choosing a Trusted Contact is essential, as this person may have a higher level of knowledge of your personal and financial circumstances. Here are some tips on how to choose a Trusted Contact:

Consider their qualifications: Choose someone with experience and knowledge in financial matters. It could be a lawyer, an accountant, a financial advisor, or someone who has worked in a related field. Their expertise will be valuable in understanding and dealing with financial issues.

Look for shared values: Choose someone who shares your values and goals. This will help ensure they act in your best interests and understand what matters most to you.
Trust your instincts: Choose someone who you feel comfortable with and can trust. If you have any doubts, it's better to choose someone else.
Have a backup: It's a good idea to have at least one backup handy in case your first choice is unavailable or away on an extended vacation.

Once you have identified a potential Trusted Contact, it's essential to approach them in the right way. Here are some suggestions on how to do that:

Explain why you choose them: Let them know that you value their judgment and expertise and trust them to act in your best interests.
Discuss their role: Explain what you expect of them and their responsibilities. Be clear about what they will and will not have access to.
Let them know you plan to share their name with your advisors, lawyer, and tax preparer.
Provide contact information: Make sure your Trusted Contact has your contact information and knows how to reach you in case of an emergency.

How to Work with Your Trusted Contact

Once you have chosen a Trusted Contact, it's important to establish the relationship you want with them. Here are some tips on how to do that:

Keep in touch: Regular communication is key; stay in touch to keep them updated, if only in general terms: about significant changes in your health and financial situation.

Establish boundaries: It's important to be clear about what your Trusted Contact can and cannot do. Note: a Trusted Contact has no legal responsibility or authority to act on your behalf.

Respect their time: Everyone is busy, so it's important to respect their time. Make sure to schedule appointments in advance and be on time for meetings.

Address privacy concerns: It's natural to have privacy concerns even when sharing small amounts of personal and financial information. Discuss these concerns with your Trusted Contact and establish a plan for how the information will be shared and kept confidential.

Common Scams and Fraudulent Activities

Unfortunately, scams and fraudulent activities are prevalent today, and older individuals are often the targets. Newer technologies make things appear differently, but they rarely are. Some common scams include phishing scams, investment scams, and identity theft. It's essential to be aware of these scams and take steps to protect yourself.

Phishing scams involve someone posing as a legitimate entity, such as a bank or government agency, in an attempt to obtain sensitive information like your social security number or login credentials. It's essential to be wary of unsolicited emails or phone calls and verify the request's legitimacy. You can always reply that you are uncomfortable sharing and just say no.

Investment scams often involve someone promising high returns on an investment, which turns out to be a scam. Researching any investment opportunity and consulting with a financial advisor before making any investment decisions is essential.

Identity theft involves someone stealing your personal information, such as your social security number or credit card information, to use for fraudulent purposes. Monitoring your credit reports regularly and reporting any suspicious activity to the authorities is important.

How to Revoke a Trusted Contact

While having a Trusted Contact is beneficial, there may be times when you need to change that. This could be due to a change in the relationship or if the Trusted Contact is no longer available to help out. In this case, you should let those relations; your financial advisor, your tax preparer know, so that they are aware of what has changed and who, if anyone, is stepping into a place.

Tying it all together

While not mandated or required - a Trusted Contact in your life can help. This person is an essential new element and one piece of your overall financial security. As our life spans stretch out, financial protection for seniors will become more acute as the vulnerable become more susceptible. Choosing someone you trust and can communicate with for advice or who can be contacted helps ensure that your financial affairs stay in good hands. By following these tips and taking the necessary precautions, you are one step further along toward a secure financial future.