What Is a Trusted Contact? Why Your Investment Accounts Need One
What Is a Trusted Contact?
A trusted contact is a person you authorize your investment firm to reach out to if they have concerns about your account — such as suspected financial exploitation or signs of significant cognitive decline. When you open or update an investment account, your firm will ask if you’d like to provide the name and contact information of a trusted contact person.
You are not required to provide this information, but doing so can offer real protection. The request is made with your best interest in mind, specifically to help lower the risk of someone else attempting to make financial decisions on your behalf without your consent.
Why Is Setting Up a Trusted Contact So Important?
No one wants to think ill of someone they know and love. But the reality is sobering: seniors lose an average of over $50,000 each time a “known person” — a family member, caregiver, or friend — commits elder financial exploitation. According to the IRS, seniors are also more likely to be targeted by financial scams than any other age group.
This reality is exactly why the trusted contact requirement exists.
What does FINRA require regarding trusted contacts?
The Financial Industry Regulatory Authority (FINRA) requires investment firms to make reasonable efforts to obtain the name and contact information of a trusted contact person for every customer account. This person can be contacted by the firm if they suspect you’re making an unusual financial decision or appear to be experiencing a notable decline in cognitive ability.
If an investment firm suspects that a withdrawal or transaction may involve financial exploitation, they may place a temporary hold on disbursements of cash or securities from the account. In these situations, the firm is expected to reach out to the investor, the trusted contact, and, if necessary, other relevant agencies.
Who Should Your Trusted Contact Be?
At first, the answer may seem obvious: the person you trust most. That instinct is a reasonable starting point — but a few additional factors are worth considering before you decide.
Does your trusted contact need financial knowledge?
Ideally, yes. Your trusted contact should be financially savvy, or at minimum have a basic understanding of financial matters. You may trust your spouse, sibling, or child more than anyone else in your life, but it’s worth asking how familiar that person actually is with investing and financial decision-making.
What qualities matter most in a trusted contact?
Beyond financial literacy, your trusted contact should be someone you’re confident will:
- Act ethically
- Respect your privacy
- Handle confidential information about your investments responsibly
Should family members know who your trusted contact is?
Yes — it’s encouraged that your family members know who has been designated as your trusted contact. When your family is aware of this arrangement, anyone who might otherwise be tempted to take advantage of you knows that another family member is looking out for your best interest. This transparency can act as an effective deterrent against elder financial abuse.
Can a trusted contact be someone outside your family?
Yes. Your trusted contact doesn’t have to be a family member. It can also be an attorney, a financial professional, or a CPA, as long as it’s someone you trust to act in your best interest.
Your Trusted Contact Is Your Ally
If you’re being financially exploited — or are at risk of exploitation — your trusted contact is the person who will be alerted and called to action on your behalf.
As the saying goes, money doesn’t build character; it reveals it. The person you choose as your trusted contact should be someone whose character won’t waver when faced with that responsibility.
Frequently Asked Questions
What is a trusted contact for an investment account?
A trusted contact is a person you authorize your investment firm to contact if they suspect unusual financial activity on your account or signs that you may be experiencing cognitive decline. This person does not have control over your account — they serve as a safeguard.
Is a trusted contact required to open an investment account?
No. Providing a trusted contact is optional. However, FINRA requires investment firms to ask for this information and make reasonable efforts to obtain it, because of the added protection it offers investors.
Why do firms ask for trusted contact information?
Firms ask for this information to help protect investors, particularly seniors, from financial exploitation. If a firm suspects fraud or exploitation, having a trusted contact on file allows them to reach out and investigate before significant harm occurs.
Can my trusted contact make decisions on my investment account?
No. A trusted contact cannot make financial or investment decisions on your behalf. Their role is limited to being a point of contact for the firm if concerns about your account arise.
Who is most vulnerable to financial exploitation?
According to the IRS, seniors are statistically more likely to be victims of financial scams than any other age group, which is part of why the trusted contact requirement was introduced.
This information is developed from sources believed to be providing accurate information. It is not intended as tax or legal advice and may not be used for the purpose of avoiding federal tax penalties. Please consult a legal or tax professional for guidance specific to your individual situation. The opinions expressed and material provided are for general information only and should not be considered a solicitation for the purchase or sale of any security.
