Brokerages have started alerting clients that they can choose a person to be contacted if their advisor suspects fraud is occurring or there is mental decline in the account owner.

When your advisor asks if you want to name a so-called "trusted contact" for your investment accounts, don't view the decision lightly. As a result of a securities rule change that took effect several months ago, brokerages are in the process of asking clients if they want to choose a person who would be contacted if their advisor suspects fraud or mental decline. "It's important to be careful about the person you name," said Marve Ann Alaimo, a partner at the law firm Porter Wright Morris & Arthur in Naples, Florida. "You need to make sure it's someone who can be trusted to do the right thing with any information they're given from your advisor."

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The rule change is part of securities regulators' efforts to battle financial fraud against seniors. Each year, older Americans lose roughly $36.5 billion to fraud, according to 2015 estimates from retirement planning site True Link. Additionally, a year-over-year increase in the number of cases and complaints involving senior financial fraud and exploitation was reported last year by 29 percent of state securities regulators, according to the North American Securities Administrators Association. In conjunction with the trusted contact requirement issued in February, the Financial Industry Regulatory Authority also began allowing brokers to put a temporary hold on a requested account withdrawal if financial exploitation is suspected. In that kind of situation, the broker could reach out to the trusted contact with their concerns.

Elder financial fraud cases Issue Percentage of cases reported Third-party abuse/exploitation 27% Account distributions 26% Family member, trustee or power of attorney taking advantage 23% Diminished capacity 12% Combined diminished capacity and third-party abuse 12% Fraud 6.30% Elder exploitation 5.70% Friend, housekeeper or caretaker taking advantage <1% Excessive withdrawals <1%

While clients are not required to provide a trusted contact, brokers must ask if they want to name one. All new accounts must include the option. Many brokerages have already begun alerting existing clients about the change. Some firms let you name a trusted contact online, while others are discussing the choice with clients in person. "We believe the best approach is to have a conversation about the trusted contact opportunity with each client, as it can lead to important information about our clients — family relationship dynamics, for example — that can help us more deeply serve their needs," said John Ellis, a principal with Edward Jones.