New Account Requirements

Before a customer can trade, the firm has to open and document the account. The state-law focus is on what information the firm gathers, who approves the account, and which documents must be signed.

What Information Goes on a New Account Record?

FINRA's customer-account-information rule requires every account record to capture:

• The customer's name and residence (address)
• Whether the customer is of legal age
• The name(s) of the associated person(s) responsible for servicing the account (not required for institutional accounts)
• The accepting partner, officer, or manager's signature or the firm's equivalent electronic approval
• For an entity account (corporation, partnership, or other legal entity): the names of the persons authorized to transact business on the entity's behalf

The agent who opens the account and a principal of the firm are responsible for the accuracy of this record.

For non-institutional accounts (and accounts limited to non-recommended open-end fund shares), the firm must also make reasonable efforts to obtain, before the initial transaction settles, the customer's tax ID or Social Security number, occupation and employer name/address, and whether the customer is associated with another FINRA member firm (relevant to the outside-brokerage-account rule for employees of other member firms).

Separately, for each account belonging to a natural person where the firm is (or within the past 36 months was) required to make a suitability determination, an SEC recordkeeping rule requires the firm to build an account record with the customer's tax ID, address, phone, date of birth, employment status and occupation, annual income, net worth, and investment objectives.

This is a broader financial-profile snapshot than FINRA's account-information list. It is also the record the firm must furnish back to the customer on the 30-day/36-month schedule below.

Exam Tip: Gotchas

Two different clocks apply to new-account information. The core identifying information (name, address, legal age) is gathered at account opening. The additional non-institutional information (tax ID, occupation, employer) only needs a reasonable effort before the initial transaction settles, which can be after the account is already open and trading. The financial-profile record (income, net worth, investment objectives) comes from a separate SEC rule tied to suitability determinations, not FINRA's account-information rule.

What Is an Institutional Account, and Why Does It Matter?

An institutional account under FINRA rules is the account of:

• A bank, savings institution, or insurance company
• A registered investment company (mutual fund)
• An SEC- or state-registered investment adviser
• Any other person, natural or entity, with total assets of at least $50 million

Institutional accounts get less stringent information-gathering treatment: the additional non-institutional details above (tax ID timing aside, since a TIN is still needed for tax reporting) and the trusted contact person requirement below do not apply to them.

Who Approves the Account, and Who Signs?

• A principal must approve the opening of a new account. Approval is a supervisory function, not something the customer performs.
• For a basic cash account, the customer's signature is not required to open the account. The firm can open and trade a cash account based on the information gathered and the principal's approval.
• A customer's signature is required to open a margin account (the margin agreement) and to trade options (the options account agreement), covered in the next two sections.

Exam Tip: Gotchas

Do not confuse approval with signatures. A principal must approve every new account, but the customer does not have to sign to open a cash account. The signature requirement kicks in for margin and options accounts.

Trusted Contact Person (TCP)

Opening an account is also when the firm requests a trusted contact person (TCP), part of protecting customers, especially older or vulnerable adults, from financial exploitation. Collecting the TCP at account opening is a FINRA requirement; the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation is what lets the firm act on that designation when it suspects exploitation.

Under FINRA's new-account rules:

• The firm makes a reasonable effort to obtain a TCP's name and contact information for each non-institutional customer account (the requirement does not apply to institutional accounts)
• 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. Naming a TCP is requested, not a hard prerequisite

At account opening, the firm discloses in writing that it is authorized to contact the TCP to:

• Address possible financial exploitation of the customer
• 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

On the state-law side, the NASAA Model Act protects eligible adults: those age 65 or older, or adults eligible for protection under a state's adult-protective-services law. When a qualified individual reasonably believes an eligible adult is being financially exploited, the Model Act permits notifying a third party the adult previously designated, and supports delaying disbursements from the account.

Exam Tip: Gotchas

A customer can decline to name a TCP and still open the account, as long as the firm made a reasonable effort to obtain one. Know which body does what. FINRA is what gets the trusted contact's name on the new account record; the NASAA Model Act is what lets the firm reach out to that person and delay disbursements when it suspects exploitation.

How Often Does the Customer Get a Copy of Their Own Record?

The account record is not just for the firm's files. The SEC's broker-dealer records rule requires a broker-dealer to furnish a copy of the customer's account record to the customer:

• Within 30 days of account opening, and
• At least every 36 months thereafter, and
• Within 30 days of the firm receiving notice of a change in the customer's investment objectives

This furnishing duty applies wherever the underlying account record applies (suitability-determination accounts, above), and is separate from how long the firm must preserve the record internally, which is a recordkeeping question covered with the rest of the unit's books-and-records rules in the Required Disclosures unit.

Exam Tip: Gotchas

Do not confuse the 30-day/36-month furnish-to-customer rule with record retention periods. Furnishing is about giving the customer their own copy on a schedule; retention is about how long the firm keeps its files. They are different obligations under the same SEC records-to-be-made rule.

What Should You Check on Exam Day?

• Match each fact to its clock: core identifying info at opening, additional non-institutional info (tax ID, occupation, employer) with reasonable effort before the initial transaction settles, and the account-record copy within 30 days and every 36 months after that.
• Confirm whether the account is institutional ($50 million total assets, or a bank, insurer, registered investment company, or registered adviser) before applying the TCP and additional-information requirements; institutional accounts are exempt from both.
• Remember approval is a principal's job; a cash account needs no customer signature, but margin and options accounts do.