Who Do You Trust?

Casey Snyder

MORE THAN 92,000 people over age 60 reported losses to fraud totaling $1.7 billion in 2021, according to the FBI’s Internet Crime Complaint Center. That represented a 74% increase in losses from the year before.

With the population of older Americans growing, the need to protect this vulnerable population is more critical than ever. Enter the concept of a trusted contact.

The trusted contact has its origin in a Financial Industry Regulatory Authority (FINRA) rule issued in March 2020. It urged registered investment advisors to ask clients to name someone the advisor can contact in case of suspicious activity. If you’ve opened a new investment account lately, you’ve probably been asked for a trusted contact.

FINRA defines the role this way: “A trusted contact is an individual authorized by an investor to be contacted by their financial firm in limited circumstances, such as concerns about activity in the investor’s account or if the firm has been unable to reach the investor after numerous attempts.”

Who might be named? It’s most often a family member, but it can also be an attorney, accountant or another reliable third party. Whoever it is, the intent is the same—to provide “another layer of security on the account and puts the financial firm in a better position to help keep the account safe,” in the words of FINRA CEO Robert Cook.

Financial industry veteran Ron Long said the trusted contact concept arose from numerous experiences in which advisors had clients who were requesting funds from their accounts to pay for obvious financial scams. “Scammers often rely on victims succumbing to pressure to act fast and to avoid discussing the money disbursement with anyone,” said Long, a principal at Long Life Consulting of Seattle, who was previously the head of Aging Client Services at Wells Fargo.

“When an advisor is able to involve a trusted family member, often a son or daughter, they are able to speak with that loved one and successfully break the trance which the bad guy has over their parent,” Long said. “In other instances, the trusted contact acts as an ‘in case of emergency’ resource where an advisor observes signs of diminished capacity or has difficulty contacting an elder client.”

While the concept of a trusted contact is a step in the right direction, it’s not a substitute for a more comprehensive approach to safeguarding elders and their money. For one thing, the circumstances under which a financial firm is authorized to contact the trusted contact are limited, and don’t cover all the possible scenarios in which elder fraud might occur.

As demographics shift, and the demands on clients and their advisors expand, we need to evolve our approach to prevent elder fraud. This is especially important given the increasing rates of cognitive impairment among older Americans. Here are five steps the public and financial professionals can take to defend those most vulnerable.

  • Add a trusted contact on financial accounts.
  • More professionals should have training on the warning signs of fraudulent activity, such as a senior making an unusually large withdrawal at the bank.
  • Financial professionals must overcome their hesitation and be willing to raise questions even in uncertain situations. The need for frank, open dialogue between a professional and the trusted contact is critical.
  • Education and communication are the keys to helping clients, friends and loved ones. Ask parents or older relatives if they have named a trusted contact. If they haven’t, consider volunteering for the role.
  • Stay in contact with your elderly family members and friends. Simple questions and social interaction are sometimes enough to prevent or uncover an attempted fraud.

As scammers become more sophisticated—and spoofing technologies have become ever more convincing—the responsibility falls on all of us to stay vigilant. The financial industry must take additional strides to better protect those at risk.

“In most instances, a client will never need an advisor to use the trusted contact,” Long said. “But like insurance, it is better to have the trusted contact and not need it than to need the trusted contact and not have it.”

D. Casey Snyder, CFP®, is a senior vice president of the Sedoric Group of Steward Partners, a financial advisory firm in Portsmouth, New Hampshire. In addition to his family, the passions that pull him away from his desk include cooking, gardening and mountain biking.

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