Requirements for Opening Customer Accounts

Knowing the account type and registration is only part of the setup. FINRA Rule 4512 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 FINRA Rule 4512 require?

For each non-institutional customer account, the firm must collect:

• Customer's name and residential address
• Whether the customer is of legal age
• Name(s) and address(es) of all associated persons handling the account
• Signature of the registered principal accepting the account
• If the account is discretionary: signature of the customer granting the authorization and signature of each person exercising discretion, plus date of authorization
• 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

Exam Tip: Gotchas

• Rule 4512 applies to non-institutional accounts. For institutional accounts (banks, insurance companies, registered investment advisers, plans with $5M+ or entities with $50M+ in assets), the TCP requirement and certain customer-information items do not apply.

What is a Trusted Contact Person under FINRA Rule 4512?

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 FINRA Rule 2165 (financial exploitation of specified adults)
• The requirement applies at account opening and when updating information for accounts opened before February 5, 2018
• 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 Rule 4512 and Rule 2165.

How often must customer account information be updated?

• 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 under Rule 4512?

• 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.