Requirements for Opening Customer Accounts

Knowing the account type and registration is only part of the setup. The customer account information rule specifies the exact information the broker-dealer (BD) must collect and preserve for every non-institutional customer account, plus the Trusted Contact Person (TCP) requirement aimed at protecting older customers from financial exploitation.

What customer account information does the customer account information rule require?

The rule has two tiers, and the exam tests the difference.

Tier 1: information the firm must maintain for every account

• Customer's name and residence
• Whether the customer is of legal age
• Signature of the partner, officer, or manager showing the account was accepted under the firm's own acceptance procedures
• If the customer is an entity (corporation, partnership, or other legal entity): the names of the persons authorized to transact business for it
• Name(s) of the associated person(s) responsible for the account (does not apply to an institutional account)
• Name and contact information for a trusted contact person (does not apply to an institutional account)

Tier 2: information the firm must make reasonable efforts to obtain

This tier applies to each account other than an institutional account, and it does not apply to an account whose investments are limited to open-end investment company shares in transactions the firm and its associated persons did not recommend. The firm must try to obtain the following before the initial transaction settles:

• Customer's tax identification number (TIN) or Social Security Number (SSN)
• Customer's occupation and name and address of the employer
• Whether the customer is an associated person of another member firm

If the account is discretionary, the firm must also keep the dated signature of each named associated person authorized to exercise discretion.

Exam Tip: Gotchas

• A partner, officer, or manager signs the general acceptance record, not "a registered principal." The account-information rule names that actor. Product-specific supervisory reviews are a separate duty that a properly registered principal performs. A question that offers "a registered principal must sign the new-account record" is offering the wrong actor.
• An institutional account is a narrow list. It means a bank, savings and loan, insurance company, or registered investment company; a registered investment adviser; or any other person with total assets of at least $50 million. There is no separate lower threshold for a plan. A choice naming a $5 million plan is testing a threshold from a different rule.
• A mutual-fund-only account can escape Tier 2 entirely. If the account is limited to open-end fund shares and the firm recommended none of those transactions, the reasonable-efforts items do not apply. This carve-out matters on the Series 6, where fund shares are the main product.

What is a Trusted Contact Person?

For each non-institutional account, the firm must make a reasonable effort to obtain the name and contact information of a TCP age 18 or older.

Key features of the TCP:

• The TCP is optional for the customer: the firm must ask, but the customer may decline
• The TCP does NOT have trading authority or power of attorney (POA)
• The firm may only contact the TCP to:
  • Address possible financial exploitation
  • Confirm contact information, health status, or identity of a legal guardian, executor, trustee, or POA holder
  • Perform functions otherwise permitted by the senior-investor protection rule (financial exploitation of specified adults)
• The requirement applies at account opening and, for pre-existing accounts, when updating the customer's account information
• The firm must provide written disclosure to the customer describing when and why the TCP may be contacted

Think of it this way: The TCP is an emergency contact, not a second decision-maker. Think of the TCP like the person listed on a doctor's intake form for "who can we reach in an emergency." They receive a phone call when something looks wrong, but they cannot make medical decisions (or trading decisions) on the customer's behalf.

Exam Tip: Gotchas

• The TCP is NOT a power of attorney. The TCP has no authority to trade, withdraw funds, or receive statements. The firm may only contact the TCP for the narrow purposes listed under the customer account information rule and the senior-investor protection rule.

How often must customer account information be updated?

• The duty runs for an account with a natural person as customer or owner, and only when the firm is, or within the preceding 36 months was, required to make a suitability determination for that account
• Firm must furnish the customer with the account-record information within 30 days of account opening and at least once every 36 months thereafter
• Customer must be given the opportunity to verify and correct the information
• Material changes (address, marital status, employment, investment objectives) must be reflected in updated records

Exam Tip: Gotchas

• The update cycle is 30 days at opening, then every 36 months. A common wrong answer is "every 12 months" or "annually." The triennial cycle only runs so long as the account is active.

How long must customer account records be retained?

• Customer account information and any updates must be preserved for at least 6 years after the account is closed (or after the information has been replaced or updated)

Exam Tip: Gotchas

• The 6-year clock starts when the account closes, not when it is opened. A 20-year-old account that was closed last month still has 6 years of retention ahead of it for its final records.

What Should You Check on Exam Day?

• Can you name the actor who signs the new-account acceptance record: a partner, officer, or manager, not a registered principal?
• Do you know that a Trusted Contact Person must be 18 or older and has no trading authority or power of attorney?
• Can you state the update cycle for customer account information: within 30 days of opening, then at least every 36 months?
• Do you know that customer account records must be preserved for at least 6 years after the account closes?
• Can you explain why a mutual-fund-only account the firm did not recommend can skip the Tier 2 reasonable-efforts items entirely?