Customer Agreements - New Account
With disclosures and prohibited representations covered, we now turn to the practical requirements for opening customer accounts. This section covers what information firms must collect, how accounts are approved, and how records must be maintained.
Required Information (FINRA Rule 4512)
FINRA Rule 4512 requires broker-dealers to maintain specific information for every customer account:
| Required Information | Rule Reference |
|---|---|
| Customer's name and residence (address) | 4512(a)(1)(A) |
| Whether customer is of legal age | 4512(a)(1)(B) |
| Name(s) of associated person(s) responsible for the account | 4512(a)(1)(C) |
| Signature of partner, officer, or manager accepting the account | 4512(a)(1)(D) |
| For entities: names of authorized representatives | 4512(a)(1)(E) |
| Trusted contact person (TCP) - name and contact info for a person age 18+ | 4512(a)(1)(F) |
Additional Information for Non-Institutional Accounts
Broker-dealers must use reasonable efforts to obtain the following before the initial transaction settles (not necessarily before the account opens):
| Additional Information | Purpose |
|---|---|
| Tax identification number (SSN or TIN) | IRS reporting; Patriot Act compliance |
| Customer's occupation and employer name/address | Suitability; conflict identification |
| Whether customer is associated with another FINRA member firm | Compliance with FINRA Rule 3210 |
Trusted Contact Person (TCP)
FINRA Rule 4512(a)(1)(F) requires firms to make a reasonable effort to obtain a trusted contact person for each non-institutional customer account:
- The TCP must be a natural person age 18 or older
- The firm may open and maintain the account even if the customer declines to name a TCP, provided reasonable efforts were made
- At account opening, the firm must disclose in writing that it is authorized to contact the TCP to:
- Address possible financial exploitation
- Confirm the customer's current contact information
- Confirm the customer's health status
- Confirm the identity of any legal guardian, executor, trustee, or power of attorney holder
- The TCP requirement connects to FINRA Rule 2165 (Financial Exploitation of Specified Adults)
- Institutional accounts are exempt from the TCP requirement
Institutional Account Definition
An institutional account under FINRA rules includes:
- Banks and savings institutions
- Insurance companies
- Registered investment companies (mutual funds)
- SEC-registered investment advisers
- Any entity with total assets of at least $50 million
Institutional accounts are subject to less stringent information-gathering requirements.
Exam Tip: Gotchas
- $50 million is the institutional threshold. Institutional accounts are exempt from the TCP requirement and have less stringent information-gathering rules.
Account Approval and Signatures
- A partner, officer, or manager of the broker-dealer must approve the opening of each account
- This approval indicates the firm has reviewed the customer information and accepted the account
- The customer's signature is required on various agreements (margin, options, discretionary) but is NOT always required on the new account form itself; requirements vary by firm and account type
Record Retention (SEC Rules 17a-3, 17a-4)
- SEC Rule 17a-3 requires broker-dealers to create an account record including: name, tax ID, address, telephone number, date of birth, employment status, annual income, net worth, and investment objectives
- A copy of the account record must be provided to the customer:
- Within 30 days of account opening
- At least every 36 months thereafter
- Whenever account information is materially changed
- SEC Rule 17a-4 requires preservation of account records for 6 years after the earlier of: (a) the date the account was closed, or (b) the date the information was last collected or updated
Exam Tip: Gotchas
- The exam tests timing distinctions. FINRA Rule 4512 requires "reasonable efforts" to obtain certain information BEFORE the initial transaction settles. SEC Rule 17a-3 requires a copy of the account record within 30 DAYS of account opening. Different deadlines, different triggers.