On December 15, 2022, FINRA issued Regulatory Notice 22-31 (the “Notice”) to emphasize the importance of obtaining trusted contact information, including a list of “effective practices” firms can use to obtain trusted contact information.
FINRA stresses that the Notice does not create any new requirements for member firms, nor does it offer a new interpretation of existing requirements. Rather, the Notice is simply intended to assist member firms in creating or modifying existing practices.
Under FINRA Rule 4512, member firms are required to make reasonable efforts to obtain the name and contact information of a trusted person when opening all non-institutional customer accounts. Rule 4512 likewise describes the circumstances under which member firms may contact a trusted contact and provides that such circumstances must be disclosed to the customer at the account’s inception.
Though the designation of a trusted contact is not required for an account’s creation or maintenance, the Notice underscores the importance of trusted contacts in the effective administration of accounts. Indeed, trusted contacts can be an asset to member firms in a variety of situations. For example, trusted contacts can assist member firms in obtaining and updating client information when diminished capacity or health issues arise, when financial exploitation issues arise, and in protecting assets.
To obtain this important information, the Notice provides a “non-exhaustive list of effective practices,” including:
- Firm Priority
- Emphasizing the importance of collecting trusted contacts to all relevant employees.
- Creating target goals for collecting trusted contacts and publicizing the results within the firm.
- Promoting effective ways of asking for trusted contacts, including seeking feedback from associated persons on successful techniques.
- Adding trusted contact information to online profiles viewed by financial professionals to act as a periodic reminder to obtain or update the information.
- Preparing and using customer-facing educational materials (e.g., the campaign materials prepared by FINRA, NASAA and SEC).
- Communicating with associated persons and supervisors about how trusted contacts have been helpful in different situations.
- Discussing with customers real-world examples of how a trusted contact may be helpful.
- Utilizing resources prepared by FINRA, NASAA, and the SEC, including a webpage, an infographic, and a video.
- Requesting Trusted Contact Information
- Requiring an affirmative answer in the account opening agreement (i.e., that the customer either provide the trusted contact information or affirmatively decline to provide the information).
- Preparing a script or talking points for firm staff to use in requesting the trusted contact information and explaining what the trusted contact can and cannot do.
- Preparing and using a separate form for customers to seek to obtain the trusted contact information.
- Incorporating into the periodic review of a customer’s account a request that the customer provide (or update previously provided) trusted contract information.
- Incorporating a prompt into the customer’s online access webpage reminding the customer to provide the trusted contact information.
FINRA notes in conclusion that the practices summarized above “have proved useful in encouraging customers to provide trusted contacts, which in turn supports firms’ efforts to better protect their customers.”
Bressler’s Senior and Vulnerable Investor Group provides end-to-end advisory solutions and litigation support for investment advisers, broker-dealers, and other financial institutions confronting senior/vulnerable investor issues.