You may hear the term “trusted contact” and think it means an important person in your life that loved ones should located in case something happens. This is true and especially in the realm of finance and insurance.
Your trusted contact serves as a safeguard, support system and a critical piece to protect your financial well-being. We’ll cover why having a trusted contact is so critical.
What is a Trusted Contact?
A trusted contact is an individual designated by an account holder to act as a point of contact in case for a variety of reasons. These can include a suspicion of financial exploitation, cognitive decline, or other concerns regarding the account holder’s financial affairs. This person is someone the account holder trusts above everyone else and is typically a spouse, adult child, close family member, friend or advisor.
In the United States, for instance, financial institutions regulated by the Financial Industry Regulatory Authority (FINRA) require customers to designate a trusted contact when opening certain types of accounts like brokerage accounts. The trusted contact’s role is to be a resource for the firm in case they need to address any issues regarding the account holder’s well-being or financial situation.
Why is a Trusted Contact Important?
- Protection Against Financial Exploitation: As people age or face challenging life circumstances, they may become more vulnerable to financial exploitation or scams. Having a trusted contact allows financial institutions and insurance companies to reach out if they notice any unusual account activity or suspect potential exploitation. This early intervention can help prevent further harm and protect the individual’s assets.
- Support in Times of Need: Life is unpredictable, and there may come a time when an individual is unable to manage their financial affairs due to illness, cognitive decline or other emergencies. In such situations, a trusted contact can step in to provide support, make financial decisions on behalf of the account holder, or communicate with financial institutions as necessary.
- Peace of Mind for Account Holders: Knowing that there is someone they trust looking out for their financial well-being can provide peace of mind to account holders. It offers reassurance that their interests are protected and that there are steps in place to address potential risks or challenges.
- Facilitates Communication: In cases where an account holder is unreachable or incapacitated, having a trusted contact on file allows financial institutions and insurance companies to establish communication with someone who can provide valuable insights into the individual’s situation and preferences.
- Compliance and Regulatory Requirements: Many financial institutions are required by regulatory bodies to have procedures in place for identifying and addressing instances of potential financial exploitation or incapacity among their customers. Designating a trusted contact helps firms comply with these requirements and demonstrates their commitment to safeguarding their clients’ interests.
How to Choose a Trusted Contact
Selecting a trusted contact is a decision that should be made thoughtfully. It should be someone who:
- Is trustworthy, reliable, and capable of making sound decisions.
- Is aware of the responsibility and willing to act in the account holder’s best interests.
- Has a good understanding of the account holder’s financial situation, preferences, and any specific instructions regarding their finances.
Want more? Check out our blog, Leaving a Legacy: 4 Types to Consider
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