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. FINRA Rule 4512 establishes these requirements.

What You'll Learn

  • What information FINRA Rule 4512 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

FINRA Rule 4512: Customer Account Information

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

  • Name and residence (address)
  • Whether the customer is of legal age
  • Occupation and employer
  • Whether the customer is an associated person of another member firm
  • Signature of the registered representative introducing the account
  • Signature of a principal (partner, officer, or manager) accepting the account

Trusted Contact Person

FINRA Rule 4512 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 verify contact details
  • 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

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, registered investment companies, entities with $50 million or more in assets) are exempt.

Updating Customer Information

  • 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
  • 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

Address Change Procedures

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.

Investment Objective Changes

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
  3. Review existing positions for continued suitability

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 check whether the client's current bond-heavy portfolio still makes sense under the new objective.

Exam Tip: Gotchas

  • Changing investment objectives is not just a paperwork update. The firm must also review existing holdings for suitability under the new objective. A portfolio that was suitable before the change may no longer be appropriate afterward.