Customer Account Records

Confirmations and statements flow outward to customers, but firms also have obligations to maintain and update the records they keep about each customer. The customer-account-information rule establishes these requirements.

What Will You Learn?

• What information the customer-account-information rule requires firms to keep on file
• The trusted contact person requirement and when it applies
• How address changes and investment objective changes must be handled
• Record retention timeframes for updated customer information

What Information Must a Firm Keep on File?

Firms must maintain records of essential customer information for every account:

• Name and residence (address)
• Whether the customer is of legal age
• Name of the associated person responsible for the account and, where multiple people share responsibility, a record of each person's scope of responsibility (this item does not apply to institutional accounts)
• Signature of a principal (partner, officer, or manager) accepting the account. The rule does not require the registered representative's signature, though many firms obtain it by policy
• For a legal entity account (corporation, partnership, or other entity), the names of the persons authorized to transact business on the entity's behalf

For non-institutional accounts other than non-recommended open-end mutual-fund accounts, firms must also make reasonable efforts to obtain, before settlement of the initial transaction:

• The customer's tax identification or Social Security number
• Occupation and employer
• Whether the customer is an associated person of another member firm

Exam Tip: Gotchas

• This is not the Customer Identification Program (CIP). CIP is a separate anti-money laundering rule that verifies identity. It requires name, date of birth, address, and an identification number before the account is opened. The customer-account-information rule is a FINRA recordkeeping rule.
• Only the tax identification number overlaps. It is a reasonable-efforts item here, due before the initial transaction settles. Occupation and employer, and whether the customer is an associated person of another member, appear in this rule and not in CIP.

What Is a Trusted Contact Person, and What Must the Firm Disclose?

The customer-account-information rule requires firms to make reasonable efforts to obtain the name and contact information for a trusted contact person (TCP) age 18 or older for each non-institutional customer account.

• The TCP requirement applies when opening a new account or updating an existing account
• The firm is authorized to contact the TCP and disclose account information to address possible financial exploitation, confirm the customer's health status or current contact information, or identify a legal guardian, executor, trustee, or power-of-attorney holder
• A firm may still open and maintain an account if the customer declines to name a TCP, as long as the firm made reasonable efforts to obtain one
• At the time of account opening, the firm must disclose in writing to the customer (electronic disclosure is permitted) that the firm or an associated person is authorized to contact the TCP for these purposes. When updating a pre-existing account's information, the firm must give this same written disclosure at that time

Think of it this way: The trusted contact person is not an account owner or someone who can make trades. They are a safety net: someone the firm can call if an elderly client suddenly starts making unusual withdrawals or becomes unreachable.

Exam Tip: Gotchas

• A customer can refuse to name a trusted contact person. The firm cannot deny account opening just because no TCP is provided. The requirement is to make reasonable efforts, not to guarantee one is obtained.
• The TCP requirement applies to non-institutional accounts only. Institutional accounts (banks, savings associations, insurance companies, registered investment companies, registered investment advisers, and any other person with $50 million or more in total assets) are exempt.

When and How Must Records Be Updated?

• Customer records must be updated when the firm becomes aware of changes
• Investment objective changes must be documented and may require supervisory review
• Firms should periodically verify that customer information remains current
• For a natural-person account, the firm must furnish the account record within 30 days of opening, and thereafter at intervals no greater than 36 months. This furnishing duty does not apply if no suitability determination was required during the prior 36 months
• Updated customer information must be preserved for at least six years after the date it was updated
• Records for closed accounts must also be preserved for at least six years after the account is closed

Where Does an Address-Change Notice Go?

Address changes have specific fraud-prevention safeguards:

• When a customer's address changes, the firm must send written notification of the change to the customer at the former address
• This notification must be sent within 30 days of the change
• The notification to the old address alerts the real account holder in case someone else fraudulently requested the change

Think of it this way: If a thief changed your mailing address to steal your account statements, you would never know unless the firm also mailed a notice to your old address. That notice is the early warning system.

Exam Tip: Gotchas

• When a customer's address changes, the notification goes to the OLD address, not just the new one. The exam tests this by asking where the notification is sent. The answer is the former address.

What Happens When Investment Objectives Change?

When a customer requests a change in investment objectives, the firm must:

1. Document the change in the account record
2. Notify the customer in writing of the change, within 30 days of receiving notice of it
3. Use the new objective for every future recommendation, starting immediately

The updated objective does not, by itself, create a duty to audit every position already in the account. Under FINRA's suitability rule, that duty attaches to a recommendation, and an explicit recommendation to hold a position counts as one, the same as a recommendation to buy or sell it.

Think of it this way: Suppose a retiree switches from "income" to "aggressive growth." The firm cannot just update the file and move on. It must confirm the change in writing, and if the rep then recommends holding the client's current bond-heavy portfolio, that recommendation must fit the new objective.

Exam Tip: Gotchas

• Changing investment objectives is not just a paperwork update. It governs every future recommendation immediately. If the rep makes or maintains a recommendation touching an existing position, including an explicit recommendation to hold it, that recommendation must fit the new objective. The change alone does not require auditing every position already in the account.

What Should You Check on Exam Day?

• Required customer-account-information items include legal age, the associated person responsible for the account (not required for institutional accounts), the principal's acceptance signature, and a legal entity's authorized-transactor names
• The reasonable-efforts items (SSN/TIN, occupation, employer, association with another member) are a softer duty than the "must maintain" list, due before settlement of the initial transaction
• TCP: reasonable efforts to obtain, not a mandatory condition of opening an account; a customer can decline. The firm must disclose in writing at account opening (and again when updating the account) that it may contact the TCP
• Address-change notice goes to the former address, in writing, within 30 days; investment-objective changes require documentation and written notice to the customer, and govern every recommendation from that point forward, including an explicit recommendation to hold an existing position
• Updated customer information is preserved for at least 6 years; covered natural-person accounts follow the 30-day opening and 36-month furnishing schedule, with no furnishing duty if no suitability determination was required during the prior 36 months