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The value of asking clients for a trusted contact (May 15, 2019)


Getting a contact name early can help advisors manage issues before they arise

Guest column for Investment Executive

By: Paul Bourque, President and CEO, The Investment Funds Institute of Canada

Financial advising is a relationship business. Successful advisors spend time building relationships with their clients and strive to help them achieve their financial goals. Because financial advisors generally deal with people over the long term, they see them change as they move through different life stages.

If advisors begin to notice signs of diminished capacity in a client or possible financial exploitation, they want to do the right thing. It’s not always easy for an advisor to do that, especially when factoring in family dynamics, the advisor’s duty of confidentiality and other legal and regulatory obligations that a registered representative is subject to. The Investment Funds Institute of Canada (IFIC) has advocated for a number of reforms to help protect both investors and the financial advisors who serve them in these situations.

Among the recommendations IFIC has made to regulators is that firms be required to make a “reasonable effort” to obtain the name of a “trusted contact” from their clients to assist in circumstances when an advisor is concerned about a client’s capacity or if they suspect financial exploitation. We also recommended legislation that provides a safe harbour for advisors who take action, in good faith, to protect their clients’ financial assets in these situations.

We are pleased that regulators are working to address these recommendations. However, asking a client to name a trusted contact is something that can be done now. It is not necessary to wait for regulatory action.

Asking a client to name a trusted contact before any issues arise provides the consent that an advisor requires under privacy laws to discuss a client’s circumstances with someone the client trusts. A trusted contact should be someone with sufficient knowledge and standing in the client’s life to know what is happening on a personal level. Sadly, most financial fraud committed against older adults involves friends, family, caregivers or social contacts, adding to the importance of ensuring a trusted contact is established and engaged, long before any issues of diminished capacity may arise.

Obtaining a trusted contact is a sound business practice that can be worked into the onboarding process and as part of updating “know your client” (KYC) information. Advisors can explain to clients that, while they are not obligated to provide the name of a trusted contact, it would be beneficial in the event the advisor has concerns of financial exploitation or another form of vulnerability that may affect the client’s judgment and decision-making capacity.

While this is a timely consideration in advance of Seniors’ Month in June, a trusted contact person is useful in any situation where a client becomes vulnerable, irrespective of age. In fact, it is one of the recommendations to emerge from research conducted by Bridgehouse Asset Managers regarding the impact of client mental health issues on financial decision-making. Naming a trusted contact was among the best practices suggested by mental health experts.

These conversations are complex and require sensitivity. Yet, they are an important part of safeguarding a client’s financial assets. The role of an advisor is to prepare their clients for the future by helping them understand the proactive steps they can take today to help create financial security for tomorrow.