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Trusted Contact Persons

NEW FOR 2022

Regulatory Obligations and Related Considerations

Regulatory Obligations:

FINRA Rule 4512(a)(1)(F) (Customer Account Information) requires 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 firms and their associated persons are authorized to contact the TCP and disclose information about the customer account.

Related Considerations:

  • Has your firm established an adequate supervisory system, including WSPs, related to seeking to obtain and using the names and contact information for TCPs?
  • Does your firm educate registered representatives about the importance of collecting and using trusted contact information, where possible?

Exam Findings and Effective Practices

Exam 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 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 new non-institutional account is opened or when the firm updates an existing account’s information (in accordance with FINRA Rule 4512(b))).

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; and (3) fraud perpetrated on the customer.
  • 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.
  • Senior Investor Specialists – Establishing specialized groups or appointing individuals to handle situations involving elder abuse or diminished capacity; contact 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

Emerging Customer Account Information Risks

Effective February 15, 2021, 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 firm and receiving approval. The rule requires the 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.

Registered persons face potential conflicts of interest when they are named a customer’s beneficiary, executor or trustee, or hold a power of attorney for their customer. These conflicts of interest can take many forms and can include a registered person benefiting from the use of undue and inappropriate influence over important financial decisions to the detriment of a customer.

When assessing your firm’s compliance with Rule 3241, consider these questions:

  • Do your firm’s policies and procedures establish criteria for determining whether to approve a registered person assuming either status or acting in either capacity?
  • Does your firm perform a reasonable assessment of the risks created by a registered person being named a customer’s beneficiary or holding a position of trust for a customer?
  • If your member firm imposes conditions or limitations on its approval, does it reasonably supervise the registered person’s compliance with the corresponding conditions or limitations?
  • Does your firm have WSPs, and deliver training, reasonably designed to make registered persons aware of the obligations under the rule and the firm’s related procedures?