What the study found
The study found that fewer than 38% of eligible U.S. investors had ever adopted a trusted contact, which is a safeguard under FINRA Rule 4512 that lets an investor voluntarily name a trusted person. The authors report that financial literacy, portfolio sophistication, and social trust are important determinants of whether people adopt this safeguard.
Why the authors say this matters
The authors suggest the findings point to substantial frictions in precautionary financial behavior, meaning some investors do not take a simple protective step even when it is available. They conclude that social capital, which refers to trust and connections within a community, strongly shapes how financial knowledge relates to adoption.
What the researchers tested
The researchers used microdata from the 2021 National Financial Capability Study. They examined both naming a trusted contact and being named by others, and they addressed endogeneity, a situation where one factor may be tied to another in ways that complicate causal interpretation, by using exposure to mandatory high-school financial education as an instrument for financial literacy.
What worked and what didn't
Financial literacy had a large causal effect on compliance. Portfolio sophistication predicted both naming a trusted contact and being named by others, and social capital strongly moderated these relationships. In low-trust environments, literacy weakly predicted or even deterred delegation, while in high-trust regions it strongly increased adoption and peer recognition.
What to keep in mind
The summary does not describe other limitations beyond the study's focus on U.S. investors in the 2021 National Financial Capability Study. The results are specific to the behaviors studied: naming a trusted contact and being named by others.
Key points
- Fewer than 38% of eligible U.S. investors had ever named a trusted contact.
- Financial literacy had a large causal effect on compliance with the trusted-contact safeguard.
- Portfolio sophistication predicted both naming a trusted contact and being named by others.
- Social capital strongly changed how financial literacy related to adoption.
- In low-trust areas, literacy weakly predicted or deterred delegation; in high-trust regions, it strongly increased adoption and peer recognition.
Disclosure
- Research title:
- Financial literacy and trust shape trusted-contact adoption
- Authors:
- Ioannis Petrakis
- Institutions:
- Northumbria University
- Publication date:
- 2026-03-05
- OpenAlex record:
- View
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