advisor-client meeting

In addition to including client-first requirements in the client-focused reforms (CFRs), Canadian securities regulators wanted to strengthen protection of older and vulnerable clients. In July 2021, they introduced new rules that require advisors to take reasonable steps to have a client name a trusted contact person (TCP) as part of enhanced know-your-client (KYC) requirements under the CFRs. They also introduced new provisions for the use of temporary holds. These rules will take effect Jan. 1, the same date as the bulk of the CFRs.

Regulators believe that, as an advisor, you are in a unique position to notice red flags with clients because you know them. Their objective is for these new TCP rules to provide more robust investor protection while also respecting client autonomy and responding to the needs and priorities of older and vulnerable investors.

This article, which is the sixth in my CFR series, looks at what’s expected of you with respect to naming and contacting a TCP, as well as key considerations for the use of temporary holds.

Spotlight on financial abuse

Financial abuse is the most common form of elder abuse. It typically occurs over an extended period and can include the use or control of the individual’s money or investments through undue pressure, or illegal or unauthorized acts.

Earlier this year, the Canadian Securities Administrators (CSA) published results of a survey that found nearly 29% of Canadians knew a victim of financial elder abuse, and 81% recognized that, when older adults are financially abused, it’s usually by someone close to them.

But financial abuse isn’t limited to the elderly. Regulators deliberately broadened the definition of vulnerability to indicate it can affect a client of any age, take many forms, and be temporary, sporadic or permanent.

TCP requirements for advisors

To help reduce financial abuse of vulnerable investors, the CSA mandated that you must take reasonable steps to obtain the name and contact information of a TCP from individual clients. Clients aren’t required to identify a TCP to open an account, but it should be encouraged. The next time you talk to an existing client to update their KYC information, you should ask them about naming a TCP.

If a client names a TCP, you must also request written consent from the client for you to contact the TCP in specified circumstances. These include, for example, if you have concerns about possible financial exploitation of a vulnerable client or about the client’s mental capacity to make financial decisions.

Because this is intended to be another element of KYC, advisors are also expected to keep the TCP information current as part of the KYC update process.

Obtaining TCP information and consent

Currently, there is no prescribed form for obtaining TCP information. Your firm may develop a stand-alone form or incorporate the information into existing forms and processes, such as an account application form and KYC update form. Either process should include steps to capture a client’s written consent.

It is not a requirement that you know what the relationship is between a client and their TCP, but it can be helpful. For example, if you contact a client’s TCP who you know to be a close friend of theirs, you can let the TCP know you’re aware of the friendship. This may make the TCP feel more comfortable speaking with you about any concerns or red flags.

Applying temporary holds

If you reasonably believe that a vulnerable client is being financially exploited or have concerns about a client’s mental capacity to make financial decisions, the new rules create a regulatory framework for you or your firm to place a temporary hold on transactions, withdrawals or transfers in these circumstances. Check with your firm about the process to follow for temporary holds.

Conversation tips for advisors

Explain the TCP role

  • Let clients know that a TCP is someone you can reach out to on their behalf if you’re concerned they’re being financially exploited or if they appear to be having difficulty making sound financial decisions.
  • Tell them you’ll contact their TCP only under specific circumstances, to protect them. Those circumstances are required to be set out in your firm’s brochure.

Outline TCP benefits

  • Let clients know that financial abuse is unfortunately an issue in Canada, and is not limited to the elderly. For example, if they became ill, impaired or disabled and were having difficulty making decisions on their own, they could become vulnerable to being financially exploited by people who are supposed to be looking after them. Naming a TCP provides them with an extra layer of protection if they ever become vulnerable to financial abuse.
  • Remind them that it’s your job to always put their interests first, and that you know how to spot financial behaviour that may be harmful to them. Having a TCP to contact if you have concerns is just one more way you can look after clients’ interests and protect their financial future.

Help clients select a TCP

  • Encourage clients to select an individual who has no financial interest in their accounts and won’t stand to gain financially from their investments. For example, they can choose a close friend, family member or caregiver they trust who would have no access to their finances.
  • Clarify that the TCP is not the same as a power of attorney. A TCP has no authority to make transactions on the account and shouldn’t be involved in any decision-making for the client.
  • The TCP is intended only to be a resource to assist you in protecting clients’ financial interests or assets in certain circumstances.
  • Recommend to clients that they let the TCP know they’ve been named and that you may contact them at some point.
  • A client may name more than one TCP on their account if they wish.

Susan Silma is head, regulatory business practices, at Sun Life Financial Investment Services. She is a lawyer and former regulator, and is passionate about integrating compliant practices into a positive advisor-client relationship.