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BDs Enlist Trusted Contacts to Fight Exploitation

By Rita Raagas De Ramos October 5, 2017

Finra is giving broker-dealer firms the responsibility of enlisting trusted contact persons to help them fight the financial exploitation of customers by third parties without violating any privacy rules. But while working on the processes for collecting names of trusted contact persons, broker-dealer firms are uncovering operational complications and business challenges in need of solutions.

Finra Rule 4512, titled “Customer Account Information,” has been amended to require broker-dealer firms to “make reasonable efforts” to obtain the name and contact information of a trusted contact person for a non-institutional customer’s account.

Although this amendment was aimed at helping curb the growing problem of financial exploitation of seniors, the requirement to ask for a trusted contact person applies to all customers. This amendment becomes effective Feb. 5 next year, as does the new Finra Rule 2165 that will empower broker-dealer firms to put a temporary hold on the accounts of seniors and mentally or physically impaired adults whom it believes are victims of financial exploitation.

While broker-dealer firms will be required to ask a customer for a trusted contact person, the customer will not be required to provide one. A trusted contact person must be at least 18 years old and can be anyone chosen by the customer — including someone who holds power of attorney, a trustee or a joint account holder.

The broker-dealer firm will be expected to ask for the trusted contact person upon the opening of a customer’s account or when updating an existing account’s information. The broker-dealer firm will be required to disclose to the customer that it will contact the trusted contact person and share information about the customer’s account to address possible financial exploitation as well as to confirm the specifics of the customer’s current contact information, health status or the identity of any legal guardian, executor, trustee or holder of a power of attorney.

“Questions are starting to percolate” now that broker-dealer firms are planning the processes for collecting names of trusted contact persons, Jeanette Wingler, an assistant general counsel at Finra, said in September at a Sifma seminar about senior investor protection rules.

James Muir, executive director for investments compliance at USAA, said most of its broker-dealer accounts are opened online, so the company’s business team weighed in on how the process can be as seamless as possible. He said the business team didn’t want a mandatory question about trusted contact persons that could turn off potential customers or prevent them from proceeding with opening accounts. USAA provides financial products and services to the military community and their families.

For accounts opened online, USAA plans to ask customers if they want to identify a trusted contact person, and they will simply answer yes or no. Giving the customers the option to choose no will let them circumvent the process, Muir said.

For existing customers, USAA plans to send a letter by mail to ask if they want to identify a trusted contact person and request they fill in the required information if they say yes.

USAA is still deciding on the fields customers will be asked to fill in — whether online or in paper — when they agree to identify a trusted contact person. The fields will likely include the name of the trusted contact person, phone number, email address and street address, Muir said. But only the name and phone number will be required.

The company wants to keep the fields as limited as possible. It’s planning to exclude a “relationship” field, for example. “We won’t add relationship, because we’ll have difficulty storing that in the warehouse of our clearing company; it’s not a field that currently exists for us.”

Finra Rule 4512 requires broker-dealer firms to get only the name and a way of contacting the trusted contact person, Wingler noted, so there is flexibility in the fields they choose to include.

Cara Aber, assistant general counsel at JPMorgan Chase, said, however, that including a “relationship” field is important because it will help the broker-dealer firms “understand the nuances of why this person was picked.”

Aber said there are many logistical and business-related issues that need to be sorted out before the rule is implemented in February next year. They may seem like small items — such as which fields to add to the trusted contact person information — but she stressed that they going to be crucial tools to help fight financial exploitation.

For example, at JPMorgan Chase, she said they plan to require the name of the trusted contact person, street address and email address, which is more than what USAA plans to require.

The street address is important, she said, because the company wants to have the ability to send a letter to a trusted contact person. Even the type of address to be required — whether it’s the legal address or a mailing address — is still being deliberated internally, showing how the little details matter, she said.

“Our ultimate goal is to use this rule for the purpose it has been created, which is to find a partner to help our clients” if they become victims of financial exploitation, she said. “The more information you can get, the better.”

Aber acknowledged, however, that broker-dealer firms will probably have “different approaches” to fulfilling the new requirement of this rule because of the different ways they operate.

USAA plans to get the name and contact information of the trusted customer person on the customer level, for example, even if Finra Rule 4512 requires that the information be sought on an account level.

“We decided to get the trusted contact person on a customer level because it would be easier for the person making the call [to the trusted contact person] to have as much latitude to talk about all the products,” including investment, insurance and bank products, he said.

The calls to the trusted contact person will be made by a companywide unit — most likely the fraud unit — rather than by an individual broker-dealer handling an account, Muir said. The company plans to inform its customers that the trusted contact persons they identify will apply to all their accounts.

The challenge to getting a trusted contact person on the customer level is that some customers may not want to give one trusted contact person access to all the information for all their accounts, Wingler said.

For example, a man could have a joint account with his wife and a separate joint account with his son, and he might not want one trusted contact person for both accounts, she said. “I would be very careful if you get a trusted customer person at the customer level, and make sure the customer understands that.”

Broker-dealer firms expect to run into more issues as they continue to work out the process for collecting names of trusted contact persons. Other challenges were identified in the Sifma seminar, which broker-dealer firms will need to find ways to address. These include safeguards that are missing in Finra Rule 4512, such as the absence of a requirement to verify that the trusted contact person is indeed at least 18 years old and the absence of a requirement to inform a person that he or she has been identified as a customer’s trusted contact person. An example of an issue that was raised is the potential that the customer’s online account opening form is being filled in by a financial exploiter.