Focal Interest
Focal Interest
AI Summary of Peer-Reviewed Research

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Trusted contact adoption remains low among eligible investors

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Research area:FinanceFinancial Markets and Investment StrategiesCompliance (psychology)

What the study found

Fewer than 38% of eligible U.S. investors had ever adopted a trusted contact, which the authors describe as a safeguard under FINRA Rule 4512. The study finds that financial literacy has a large causal effect on compliance, portfolio sophistication predicts both naming a trusted contact and being named by others, and social capital strongly changes these relationships.

Why the authors say this matters

The authors say the low adoption rate points to substantial frictions in precautionary financial behavior. The study suggests that bounded attention, financial capability, portfolio complexity, and social trust are important for understanding whether investors use this voluntary safeguard.

What the researchers tested

The researchers used microdata from the 2021 National Financial Capability Study. They analyzed both naming a trusted contact and being named by others, and they used exposure to mandatory high-school financial education as an instrument for financial literacy to address endogeneity.

What worked and what didn't

Financial literacy was reported to have a large causal effect on compliance. Portfolio sophistication predicted both outcomes, and social capital strongly moderated these relationships: in low-trust environments, literacy weakly predicted or deterred delegation, while in high-trust regions it strongly amplified adoption and peer recognition.

What to keep in mind

The abstract does not describe limitations beyond the study's focus on eligible U.S. investors and the measures used. The findings are based on one survey dataset and the relationships discussed are specific to the variables and strategy described in the abstract.

Key points

  • Fewer than 38% of eligible U.S. investors had ever adopted a trusted contact.
  • Financial literacy had a large causal effect on compliance, according to the authors.
  • Portfolio sophistication predicted both naming a trusted contact and being named by others.
  • Social capital strongly moderated the relationships between literacy and trusted-contact behavior.
  • In low-trust environments, literacy weakly predicted or deterred delegation; in high-trust regions, it amplified adoption and peer recognition.

Disclosure

Research title:
Trusted contact adoption remains low among eligible investors
Publication date:
2026-03-05
DOI:
10.1016/j.jbef.2026.101168
OpenAlex record:
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AI provenance: AI provenance information is not available for this post.

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