11.3 Trusted Contacts and Vulnerable Investor Holds

Senior and Vulnerable Investor Protection Framework

Demographic trends have concentrated substantial wealth among older retail investors, exposing them to aggressive financial predation, romance scams, lottery fraud, and undue influence by unscrupulous family members or caregivers. FINRA established a robust regulatory framework under Rule 4512 and Rule 2165 to protect vulnerable adults.

FINRA Rule 4512: The Trusted Contact Person (TCP)

Under FINRA Rule 4512, member firms must make reasonable efforts to obtain the name and contact information (telephone number, email address, mailing address) of a trusted contact person (TCP) upon opening any non-institutional customer account, or when updating account records for existing accounts.

• Eligibility: The trusted contact person must be a natural person aged 18 or older.
• Customer Prerogative: Naming a trusted contact person is entirely optional for the customer. If a customer declines or fails to name a TCP, absence of a TCP does not itself prevent opening or maintaining an account when reasonable efforts have been made.
• Written Disclosure Mandate: The firm must provide written disclosure at account opening explaining that the firm or an associated person is authorized to contact the TCP and disclose information regarding the customer's account to:
  1. Address suspected financial exploitation;
  2. Confirm the customer's current contact information;
  3. Verify the customer's health or mental capacity status; or
  4. Identify any legal guardian, executor, trustee, or holder of a power of attorney.
• Strict Limits on TCP Authority: Designating an individual as a TCP does not grant that person any trading authority, disbursement power, or access to account balances. A TCP cannot direct transactions or withdraw funds unless they hold an independent, legally valid Power of Attorney.

FINRA Rule 2165: Financial Exploitation of Specified Adults

FINRA Rule 2165 provides broker-dealers with an affirmative safe harbor allowing firms to place temporary holds when financial exploitation is suspected.

• Definition of "Specified Adult":
  1. Any natural person age 65 or older; or
  2. Any natural person age 18 or older whom the member firm reasonably believes has a mental or physical impairment that renders the individual unable to protect their own interests.
• Definition of Financial Exploitation:
  • The unauthorized or improper obtaining, using, or withholding of a specified adult's funds, securities, or property; or
  • Any act or omission by a person—including through the use of a power of attorney, guardianship, or legal authority—to obtain control through deception, intimidation, or undue influence over the adult's assets, or to convert those assets to deprive the adult of their rightful use.

Temporary Hold Authority and Current Timeframes

Under Rule 2165, if a broker-dealer reasonably believes that financial exploitation has occurred, is occurring, has been attempted, or will be attempted, the firm is authorized to place a temporary hold on the disbursement of funds or securities and on securities transactions (such as liquidating conservative positions or purchasing speculative assets).

• Mandatory Notification Window: Not later than two (2) business days after placing the temporary hold, the broker-dealer must provide written or oral notification of the hold and the reason for the hold to:
  1. All persons authorized to transact business on the account (unless an authorized party is the suspected perpetrator); and
  2. The designated Trusted Contact Person (unless the TCP is the suspected perpetrator).
• Immediate Internal Review: The firm must immediately initiate an internal review of the facts and circumstances that caused the hold and retain detailed supervisory records.
• Targeted Application: The temporary hold applies specifically to the suspicious disbursement or transaction; normal unaffected trading and routine living expenses (e.g., paying verified mortgage or utility bills) should not be disrupted.

Limits of the Hold and Trusted Contact

A trusted contact is a communication resource, not a substitute owner or signer. Contacting that person can help verify the customer’s circumstances, but it does not authorize transferring funds to the contact. Do not disclose information to a suspected exploiter merely because the person is listed as the TCP.

For the additional 30-business-day extension, document both continued supporting internal review and the qualifying report/notification to a state regulator, competent agency or court. The current ordinary staged maximum is 15 + 10 + 30 = 55 business days, subject to lawful termination or further extension by the competent authority. A proposal for a longer period is not operative simply because it was published for comment.

Sources checked 2026-10-20: FINRA complaint records, FINRA reporting, FINRA exploitation holds.