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What types of U.S. investors are most likely to have named a trusted contact for their brokerage accounts?
Investors who rely on a professional financial advisor, who prefer to receive disclosures during in-person meetings (compared to mail), and who are worried about becoming a victim of financial fraud are most likely to have named a trusted contact for their brokerage accounts.
Oct 31, 2024
2 minute read
2 minute read
Key takeaways:
- Our analysis assessed whether higher levels of financial literacy make investors more likely to name a trusted contact for their brokerage accounts.
- A negative relationship was found between objective knowledge (measured via a test on basic financial concepts) and naming a trusted contact, while a positive relationship was found with subjective knowledge (i.e., how respondents rated their overall financial knowledge).
- The findings indicate a need for improved communication and educational efforts on behalf of industry professionals to encourage investors to name trusted contacts for their accounts.
Why did we do this research?
A national representative sample of 2,046 investors with brokerage accounts outside of workplace retirement plans collected by FINRA revealed that only 40% have named a trusted contact.
Why is this research important?
A trusted contact is a person that a brokerage firm is authorized to contact if the account owner is suspected of having health issues; to confirm the identify of a legal guardian, executor, trustee, or holder of power of attorney; or if the firm has reason to believe the account may be subject to financial exploitation or fraud. Given an aging population and the recent rise in artificial intelligence-generated scams, a trusted contact can help protect vulnerable investors. Trusted contacts do not, however, have access to the assets in the account, nor do they have trading authority.
What did we learn?
Factors positively associated with naming a trusted contact were subjective knowledge, use of professional advice, and a preference to receive mandatory disclosures during in-person meetings. Somewhat surprisingly, individuals aged 45 and 54 were more likely to have named a trusted contact compared to those aged 65 and older, which is the demographic that may benefit the most.
What are the takeaways for clients?
To drive higher levels of adoption, investors must feel confident in their ability to review, complete, and submit the necessary paperwork and select an individual who, if contacted, will act responsibly and in the account owner’s best interest. Working with a financial advisor and having the ability to discuss these topics in person can help investors take advantage of this valuable tool.
Source: Sommer, M., & Lim, H. (2023). Financial literacy and naming a “trusted contact” for U.S. brokerage accounts. Journal of Financial Services Marketing, (29)2, 1-8.
Oct 31, 2024
2 minute read
2 minute read
Key takeaways:
- Our analysis assessed whether higher levels of financial literacy make investors more likely to name a trusted contact for their brokerage accounts.
- A negative relationship was found between objective knowledge (measured via a test on basic financial concepts) and naming a trusted contact, while a positive relationship was found with subjective knowledge (i.e., how respondents rated their overall financial knowledge).
- The findings indicate a need for improved communication and educational efforts on behalf of industry professionals to encourage investors to name trusted contacts for their accounts.