Trusted Contact Person

Client Ambrose Whitfield-Kaur names his daughter as the trusted contact person on his advisory account. Some months later she telephones the firm and directs it to move his portfolio into cash. The firm should:

1. A.Execute the instruction, because a trusted contact designation confers authority to act on the accountThe designation confers no trading or instructional authority whatsoever.
2. B.Execute the instruction only if the daughter confirms it in writingWritten confirmation from someone without authority still supplies no authority.
3. C.Decline to act on her instruction, because a trusted contact has no authority to direct transactionsCorrect. The role permits the firm to contact her for information, not to take orders from her.
4. D.Freeze the account immediately, because any contact from a trusted contact signals exploitationA call from a trusted contact is not itself evidence of exploitation and does not trigger a hold.

Why: A trusted contact person is someone the client authorizes the firm to reach out to in order to address possible financial exploitation, to confirm the client's current contact information or health status, or to identify any legal guardian, executor, trustee or holder of a power of attorney. Naming a trusted contact confers no trading authority and no authority to give instructions on the account. Only the client, or someone with properly documented legal authority such as a power of attorney, can direct transactions.

Ophira Blanchet, 78, opens an account at Ravenshaw Securities and names her nephew Casper as her trusted contact person. Six months later the firm notices a pattern of large, unexplained withdrawals from the account. What does the trusted contact designation permit Ravenshaw to do?

1. A.Accept Casper's instruction to sell securities and halt the withdrawals, since a trusted contact stands in the customer's placeHe stands in nobody's place. Only the account owner or someone holding legal authority may give instructions.
2. B.Send Casper duplicate account statements and confirmations as a matter of courseRoutine document delivery is not part of the designation. The permitted contact is targeted and situational.
3. C.Nothing yet, because a trusted contact designation becomes operative only once a court has found the customer incapacitatedIt is operative from account opening. Its whole purpose is to be available before any formal determination exists.
4. D.Contact Casper about Ophira's health, whereabouts and any suspected exploitation, and confirm whether anyone holds legal authority over her affairs - but not take account instructions from himCorrect. The designation opens a line of communication and confers no authority to act.

Why: A trusted contact is a channel for information, not a source of authority. The firm may reach out to the named person to ask about the customer's current contact information, health status and whereabouts, to confirm the identity of any legal guardian, executor, trustee or holder of a power of attorney, and to raise a concern about possible financial exploitation. The trusted contact cannot direct trades, authorise withdrawals or receive account documents as of right, and the designation takes effect when the account is opened rather than on any finding of incapacity.

Sigrid Halvorsen, 83, lives alone and has twice mislaid mail. Her producer recommends that she designate her nephew under a policy provision allowing a THIRD PARTY to receive a copy of any notice that the policy is about to lapse for nonpayment. Sigrid worries this will give her nephew control of her policy. What does such a designation actually do?

1. A.It makes the nephew a joint owner of the policy, so both signatures are needed for any future change.Wrong. The designation confers no ownership interest whatsoever and no signing authority.
2. B.It gives the nephew a duplicate copy of any lapse notice and nothing more: no ownership rights, no policy rights, and no obligation to pay.Correct. The designation transmits information only, which is what makes it a safe and easily revocable protection for the owner.
3. C.It obligates the nephew to pay any premium the owner misses, with a right of reimbursement from the estate.Wrong. No payment obligation is created. The nephew may choose to pay to protect the coverage, but nothing requires him to.
4. D.It automatically converts the policy to reduced paid-up insurance if a premium is missed.Wrong. That would be a nonforfeiture election, an entirely separate provision. The notice designation changes no policy value.

Why: A third-party notice, or secondary addressee, designation directs the insurer to send a DUPLICATE of any lapse or termination notice to a person the owner names. That is its entire effect. The designee receives information and nothing else: no ownership rights, no right to change the beneficiary, no right to borrow or surrender, no access to the owner medical or financial information, and no obligation to pay anything. The designation exists because the single most common cause of an unintended lapse among older policyowners is a missed notice, and a second set of eyes lets a family member either alert the owner or pay the premium voluntarily to preserve valuable coverage. The owner can add or revoke the designation at will, and it changes nothing about the underlying contract.

Coldstream Markets is standardizing the checklist its account-opening unit works from. For which account does the firm have no obligation to make reasonable efforts to obtain the name of a trusted contact person?

1. A.An institutional account.Correct. The requirement attaches to accounts having a natural person as customer or owner, and an entity account has no such person.
2. B.A joint account with rights of survivorship.Wrong. Two owners means the firm makes the effort in respect of the account, not that the effort ceases to be owed.
3. C.A margin account.Wrong. How an account is financed has no bearing on whether the firm should have somebody to call about the account holder.
4. D.An account for a person associated with another member firm.Wrong. That status layers duties toward the employing firm on top of the ordinary onboarding items; it subtracts nothing.

Why: A trusted contact person exists so the firm has somewhere to turn when it cannot reach an account holder, or when it suspects the holder is being exploited or is losing capacity. That concern is about human beings, so FINRA's customer account information rule attaches the requirement to each account having a natural person as a customer or owner. An account owned solely by an entity has none, so the item drops away. Note the shape of the duty for everyone else: it is to make reasonable efforts, so a customer who declines to name anybody does not block the account from opening as long as the firm records that it asked.