Account Closure Procedures

Accounts don't last forever. Whether a customer voluntarily closes an account, a firm initiates closure, or an account goes dormant, specific procedures apply.

How Does a Voluntary Closure Work?

• A customer may close their account at any time
• The firm must liquidate or transfer all positions per the customer's instructions
• Any free credit balance must be remitted to the customer promptly
• The firm should obtain written instructions to close the account
• Transfers between firms use the Automated Customer Account Transfer Service (ACATS), which typically completes within 3 business days for eligible assets
• Some assets are not ACATS-eligible (such as proprietary funds or certain limited partnerships) and must be liquidated or transferred manually

Exam Tip: Gotchas

• ACATS transfers take 3 business days, not 3 calendar days. The receiving firm initiates the transfer, not the delivering firm.
• A firm cannot refuse a customer's request to close or transfer an account. It can charge applicable fees, but it cannot block the transfer.

When Can a Firm Close an Account on Its Own?

A firm may refuse, restrict, or close an account under certain circumstances:

• Valid reasons include:
  • Failure to meet minimum requirements
  • Repeated regulatory violations by the customer
  • Excessive risk exposure
  • Inability to verify customer identity under the Customer Identification Program (CIP) or Anti-Money Laundering (AML) requirements
• The firm must provide reasonable notice and handle remaining assets per customer instructions
• Records of closed accounts must be maintained per retention requirements (6 years after closure)

What Is Different About Closing a Margin Account?

Closing a margin account has additional steps beyond a standard cash account:

• All margin balances must be settled before the account can close
• If the customer has a debit balance, they must deposit funds or the firm will liquidate positions to cover the debt
• Any short positions must be covered (bought back) before closure
• The firm sends a final margin statement showing zero balance

Think of it this way: A margin account is like a credit card tied to your brokerage. You cannot close the card while you still owe money. Either pay off the balance or the firm sells your holdings to collect what is owed.

What Happens When the Firm Learns of a Customer's Death?

When a firm learns of a customer's death:

• All open orders are canceled immediately
• The account is frozen (no new trades) until proper documentation is received
• Required documents typically include a certified death certificate and letters testamentary (or letters of administration) from the probate court
• For joint accounts with rights of survivorship (JTWROS), the surviving owner takes full control of the account
• For tenants in common (TIC) accounts, the deceased's share passes to their estate

Exam Tip: Gotchas

• Upon notification of death, cancel all open orders first. The account is frozen until estate documents arrive.
• JTWROS accounts do not go through probate. The surviving owner gets the assets automatically. TIC shares go to the estate and require probate.

What Happens to an Abandoned Account?

• Accounts with no customer-initiated activity for a specified period may be deemed dormant
• State unclaimed property (escheatment) laws govern the disposition of abandoned accounts
• The dormancy period varies by state, typically 3 to 5 years of inactivity
• Firms must make reasonable efforts to contact the customer before escheating assets to the state
• Escheated assets are turned over to the state treasurer's office (or equivalent agency)
• Customers can reclaim escheated assets by filing a claim with the state

Think of it this way: Escheatment is the state stepping in as a custodian for lost property. The assets are not forfeited. They sit with the state until the rightful owner (or their heirs) claims them.

Exam Tip: Gotchas

• Escheatment is governed by state law, not federal law. The dormancy period and procedures vary by state.
• The firm does not keep unclaimed assets. They go to the state.
• Dividends and interest payments count as account activity. An account receiving regular dividends is not considered dormant, even if the customer never logs in.

What Should You Check on Exam Day?

• A customer can close an account at any time; the firm cannot refuse, but may charge fees
• ACATS-eligible transfers complete in 3 business days; non-ACATS-eligible assets (proprietary funds, some limited partnerships) need manual liquidation or transfer
• A firm may close an account only for valid cause (minimum requirements, repeated violations, excessive risk, unverifiable identity), with reasonable notice
• Death: cancel open orders immediately, freeze the account, and require estate documentation; JTWROS bypasses probate, TIC shares go to the estate
• Escheatment is state law, not federal; dividends/interest count as activity, so a dividend-paying account is not dormant