Saturday, November 2, 2019

Consider Naming a Trusted Contact Person for your Account(s)

Seniors are a rapidly growing demographic in Canada. Average life expectancy of Canadians is rising and by 2036, seniors have been projected to account for between 23% to 25% of the Canadian population. Research conducted by the Mutual Fund Dealers Association (MFDA), the regulator for mutual funds, indicates that clients 65 years of age or older account for 21% of all households serviced by MFDA Members and 34% of Member Assets Under Administration (“AUA”).Seniors thus have a disproportionate amount of financial assets .Such statistics give rise to a number of investor protection concerns.  

As the human body ages, it is normal for changes to take place. A client may lose the capacity to provide instructions to a salesperson, due to dementia, a psycho-social or developmental disability or health reasons such as episodic delirium or medication use.  The fund salesperson may be concerned that trades are radically different than previously, or that the client is acting erratic or forgetful. Diminished capacity also makes seniors vulnerable to potential financial exploitation and fraud. A client may exhibit behaviour or provide instructions to a representative that the salesperson believes to be unduly influenced by external forces. Perhaps someone is stealing from that client and account withdrawals are going to a fraudster (e.g.  a romance scam).

A mutual fund salesperson may be among the first to notice diminished capacity and/or unusual transactions. In cases like these, you might expect the salesperson to be proactive and contact someone to help. Perhaps a family member or a good friend. Due to confidentiality and privacy laws, we have a roadblock.

A solution is for the client to identify a trusted contact person (TCP) like an emergency contact. Then the Firm/salesperson would have the client’s consent to contact the trusted person if they suspected declining diminished capacity or wrongdoing. The person should be informed and agree that his/her contact information will be provided to the Firm as a TCP. The role of the TCP is really as a resource for a salesperson or Firm to contact to determine whether the TCP has also noted concerns related to diminished capacity or, in the case of financial exploitation, the presence of a new individual in the client's life or increasingly fearful behaviour, increased social isolation imposed by another person, etc.

The MFDA has released a brief bulletin that introduces the idea of a Trusted Contact Person for use by its Members. 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. A trusted contact person should be a trusted and neutral person and must be an individual over the age of majority.

Contacting a TCP could be of assistance in situations where, among others, there are concerns that a client is being financially exploited or concerns regarding the client’s mental capacity. A TCP is not intended to be a substitute for a power of attorney (POA), but a complement to the POA and almost always should be a separate person. The TCP should not be an individual who has an interest in the client's account and/or is involved in making financial decisions to the account.

The TCP does not have decision making power with respect to, or authority to effect changes to, the client’s account by virtue of being the trusted contact. Naming someone other than a person given power of attorney provides additional protection because it separates the roles of a TCP from an agent granted such powers. And in the event that either one is involved in financial fraud against the senior, the other can help to protect the senior.

As a best practice, the MFDA recommends that members take reasonable steps to obtain the name and contact information of a TCP when a client opens an account and keeps it current upon KYC updates.

Naming a trusted contact person would not just benefit seniors. It would be helpful for clients of any age. Some reasons your Firm might communicate with a trusted contact person include:

·         Confirming current contact information, if the Firm cannot reach you.

·         Confirming your current health status, if your Firm suspects you are sick or suffering from diminished capacity.

·         Confirming the identity of any legal guardian, executor, trustee or holder of a POA on your account(s)

·         If you are involved in an accident, your salesperson might not be able to contact you on an important issue in your investment account.

It goes without saying that you have to select a TCP while you still have mental capacity.

You are not obligated to name a TCP but Kenmar highly recommend that you consider naming a trusted contact person for yourself and/or family members whether or not they are in their retirement years and/or are exhibiting signs of a decline of mental capacity.