Trusted contact restores communication after clients defrauded

The importance of a trusted contact isn’t lost on Sue Foley, given that her clients — a married couple — fell victim to fraud and couldn’t be readily reached.

“It was such an eye-opener,” Foley said, referring to the fraught experience, which solidified for her the need for trusted contact persons (TCPs). Foley is a financial planner with Hartry Foley Financial Ltd. in Waterdown, Ont.

As part of enhanced know-your-client requirements, advisors must take “reasonable steps” to obtain from clients the name and contact information of a TCP. Advisors also should obtain the client’s written authorization to contact the TCP about potential financial exploitation or concerns about mental incapacity, or to inquire about the client’s contact information or that of their legal representative.

FP Canada’s similar proposed rule for financial planners was part of a consultation that ended last December. The certification body will soon release an update of its standards of professional responsibility to reflect the consultation, an FP Canada spokesperson said in an email.

Foley received an evening phone call recently from a number she didn’t recognize, she said. The couple, her clients, were phoning from a neighbour’s home, and they told Foley that the wife’s identity was stolen and their bank account compromised. The wife had been told not to use her computer, email or cell phone.

During the brief conversation, Foley told them the bank would need to place restrictions on the account until the issue was resolved, and the couple said they’d contact her again once they knew more.

The next day, Foley, whose dealer is Worldsource Financial Management Inc., contacted her compliance officer for guidance. But there was no way to readily tell the couple about next steps, and Foley received a suspicious text ostensibly from the couple.

“I need to call the trusted contact,” Foley told compliance.

The clients had named their son-in-law as their TCP, giving Foley his work number. When Foley phoned the son-in-law and explained the situation, he questioned her identity, given that she didn’t have his personal number.

The phone then fell silent.

“The trusted contact just hung up on me,” Foley said. “This did not work the way it’s supposed to.”

However, Foley’s call motivated the son-in-law to make the two-hour drive to his in-laws. Once there, he called Foley and apologized.

“I get it,” she replied, recalling how she didn’t know whether to trust the text she’d received earlier.

With communication established, Foley was able to speak with the clients in more detail. She asked who had informed them their bank account was compromised and not to use their phone or email. The information was in an email, the couple said, and they were likewise informed that the wife would receive a new social insurance number.

Foley told them they were dealing with fraudsters. “They have befriended you,” she said, “and now they’re going to try to get everything.” She told them to call the police, and the son-in-law stayed with them as they did so.

Restoring the compromised bank account took about a week. Account assets had been put in escrow to protect them, and account payments had been put on hold, Foley said. The clients’ insurance broker and other financial services providers were notified about the fraud, along with credit bureaus.

Since the incident, Foley said she tells clients to tell their TCPs they’ve been named to that position.

In an email, Natasa Morfesis, chief compliance officer with Worldsource Financial Management Inc. and Worldsource Securities Inc., said the firm’s documentation for account opening and updates includes an acknowledgement from the client, when TCP information is collected, that they’ve notified the TCP that the TCP’s information has been provided to the firm.

Foley said some clients have named their spouses as TCPs. She now suggests they name someone else, given that in cases such as this one, contact with both spouses may break down (Foley said she would have driven to the couple’s home herself if necessary). A client going through a nasty divorce or separation would also benefit from having a TCP who isn’t the spouse, she noted.

If a client has previously refused to provide TCP information, at each KYC update, advisors should ask clients again if they’d like to provide that information, Morfesis said.

In addition to TCP discussions, Foley is discussing fraud protection with clients, she said: “Every time I’m doing a KYC update, I’m talking about it.”