Encourage clients to establish a Trusted Contact

For aging clients, it may be difficult to feel secure—and for good reason. According to the Securities Industry and Financial Markets Association, U.S. seniors lose an estimated $2.9 billion every year in cases of financial exploitation, with only 1 in 44 cases reported to authorities.² Suspicious activity report filings in elder exploitation cases quadrupled from 2013 to 2017. Of these filings, 80% involved a monetary loss.³

Read a summary of frequently asked questions to understand the implications of these rules.

As elder abuse and exploitation make headlines, clients could be looking for assurance that it won’t happen to them. Since 2017, new regulations have shone a spotlight on seniors as a fiduciary issue for advisors. In addition to FINRA rules that protect senior investors, which apply to broker-dealers like Schwab, several states have proposed or adopted similar legislation, including provisions regarding self-reporting and training. Even SEC-registered advisors are affected by these laws if they have representatives licensed in these states.

Serving senior investors: Rules and regulations for advisors

• Federal Senior Safe Act: This measure allows banks, credit unions, investment advisors, brokers, etc., to report suspected fraud to law enforcement without the fear of being sued as long as they have been trained to identify and report suspicious activity.
• State laws: Several states have proposed or adopted legislation to protect senior investors, including provisions regarding self-reporting and training. In some states, for example, financial institutions are considered mandated reporters of financial abuse, and more states are likely to follow suit. Keep in mind that SEC-registered advisors with representatives licensed in any of these states are also subject to these laws.
• FINRA Rule 4512: This rule requires broker-dealers, including Schwab, to make a reasonable effort to obtain the name and contact information of a Trusted Contact for each client.
• FINRA Rule 2165: This rule provides broker-dealer member firms, including Schwab, with a safe harbor to place temporary holds on the disbursement of funds or securities if a member reasonably believes a client is being exploited financially.

Schwab takes security seriously, and these new FINRA rules are a step in the right direction. As a result, Schwab has added a new section on Schwab Alliance. Guide your clients to the Service tab to add their Trusted Contact.

Your client may already have a person with power of attorney (POA) listed. But a Trusted Contact is an additional resource to help you and Schwab act quickly and decisively should a client suffer diminished capacity to manage their finances or become a target of fraud.

Though listing a Trusted Contact is not a requirement, it is the kind of extra effort and care that may help reinforce your client relationships—and their sense of security. Now is always the best time to prepare for the future.

What is a Trusted Contact?

A Trusted Contact is designated by your client. This person gains authorization to speak on your client’s behalf with you and Schwab to:

• Confirm your client’s current contact information
• Discuss your client’s mental or physical health status
• Discuss activities or other possible red flags that might indicate your client is being financially exploited
• Address other limited circumstances when permitted by law

It's important to note that the authority granted to a Trusted Contact is different from that granted to a person with POA or Durable POA. Trusted Contacts do not act on your client’s behalf. They are unable to view account information, execute transactions, or inquire about account activity unless they’re already an authorized party (such as a trustee or individual with POA) or have View Only access to the account. And only your client as the account holder can add, update, or remove a Trusted Contact from their account.

Your client should understand that naming a Trusted Contact gives you and Schwab permission to speak with the Trusted Contact when account activity seems suspicious. Schwab will work directly with you to address sensitive client situations in which exploitation is suspected.

Red flags to look for when serving senior investors

• Sudden changes in habits, such as uncharacteristic cash withdrawals or wire transfers
• Reliance on a new friend or relative who shows excessive interest in their account
• Changes to authorization, POA, beneficiaries, and trusts
• Memory loss, confusion, or difficulty speaking or communicating

Who can be a Trusted Contact?

Any person the client selects who is at least 18 years old can be a Trusted Contact. Encourage your clients to designate someone who isn't already authorized to conduct business or receive information on their behalf. Trusted Contacts are usually family members or close friends—people your clients trust and who are likely to know and understand their current situation—as opposed to investment advisors or someone with POA.

Having both a Trusted Contact and a person with POA is important because, sadly, 90% of elder abusers are family members or people who are closest to the victim. Remind your clients to update this information should any circumstances change.

How do clients designate a Trusted Contact?

Work directly with each client that has eligible accounts, and explain how to update Trusted Contact information on Schwab Alliance. Each Schwab account may have two Trusted Contacts assigned to them. To check whether a client has a Trusted Contact, view their account profile on Schwab Advisor Center^®: 

1. Select your client's account.
2. Go to Profiles.
3. Under Account Holders and Contacts, select the client’s account, go to Profiles, and select the name of your client. Note: Trusted Contact information is located on the Profiles tab for each individual account holder, not at the account level.

As part of the Trusted Contact discussion with your client, consider addressing other proactive steps, such as filling out a Durable POA or getting started on general estate planning.

Risk assessment tools

Use the following list to develop senior and vulnerable investor risk assessment tools to educate employees:

• Establish a protocol for how to deal with suspected impairment.
• Train your staff to look for signs of diminished capacity.
• Track retail clients ages 60 and older, for example, and schedule regular check-ins. (Note: SEC, FINRA, states, and Schwab use different ages to define a senior citizen.)
• Develop policies for responding to potential red flags.
• Follow up and ask your clients to explain any suspicious activity.
• Report all cases of suspected elder financial exploitation.
• Refer to applicable state laws, the Senior Safe Act, and compliance consultants for additional information.

Schwab is here to help

To better support you and your clients when there is suspected elder financial exploitation or diminished capacity, Schwab has assembled a Senior & Vulnerable Investors Investigations team. This team helps resolve issues that require in-depth research and case management, while working and coordinating with you directly on sensitive cases.

Ensure that your firm knows when to report suspected fraud or mental impairment to Schwab or the appropriate authorities and when, if ever, it may be time to terminate your relationship with the client. The Senior & Vulnerable Investors Investigations team can help identify situations when restrictions, monitoring, or a hold should be placed on an account. If you suspect exploitation or diminished capacity, reach out to your Schwab service team immediately.

Learn about Schwab’s Senior & Vulnerable Investors Investigations team and more ways to support aging clients here.

If you’re thinking about becoming an independent advisor, consider a custodian that invests in your success. Contact us to learn more about the benefits of a custodial relationship with Schwab.