Why You Should Add a Trusted Contact to Your Broker Account
When you open a new brokerage account or update your existing account information, your broker will ask you to designate a "trusted contact person." This request is not mandatory — but there are several important reasons to provide this information.
What Is a Trusted Contact?
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. The person must be age 18 or older. They may be a family member, close friend, attorney, accountant or another third party you believe would respect your privacy and be willing to help.
It's important to understand what a trusted contact is not. Designating a trusted contact does not give that person any authority to act on your behalf, execute transactions or engage in activity in your account. Your broker is simply authorized to share information with them in specific protective situations.
Why It Matters
Adding a trusted contact puts your brokerage firm in a better position to keep your account safe. For example, if your firm cannot reach you, a trusted contact may help ensure your address and contact information are correct. A trusted contact may also help your firm respond to possible financial exploitation or fraud and protect your assets. If your firm suspects a health issue, a trusted contact may help protect your account's assets.
This is especially important as a safeguard against elder fraud and financial exploitation. In February 2018, FINRA enacted a rule requiring all brokerage firms to ask retail customers for a trusted contact person, specifically to help protect investors from financial exploitation and fraud.
How to Set One Up
Brokerage firms must request trusted contact information when opening a new retail account or updating account information for an existing account. If you would like to add a trusted contact person to your brokerage account, contact your firm or investment professional at any time and ask how to add one.
When you designate someone, make sure it's genuinely someone you trust and who is likely to be reachable if your broker needs to contact them. Review and update this information periodically, especially if your circumstances change.
The Regulatory Foundation
The trusted contact rule comes from FINRA Rule 4512, a foundational element of the modern investor protection framework that mandates member firms make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer's account. FINRA's mission is to protect investors and ensure the integrity of financial markets by regulating the conduct of broker-dealers and their representatives, developing and enforcing rules designed to promote ethical practices.
Designating a trusted contact is a simple, cost-free step that strengthens your account's defenses against fraud and gives your broker an additional way to reach you during sensitive situations. While not required, the SEC and FINRA both encourage investors to complete this designation.
Analysis, not investment advice.