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 You'll 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 the registered representative introducing the account
• Signature of a principal (partner, officer, or manager) accepting the account
• 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

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, registered investment companies, entities with $50 million or more in 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
• The firm must furnish the account record to the customer within 30 days of opening the account, and thereafter furnish updated account information at intervals no greater than 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
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.

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, written notice to the customer, and a suitability review of existing holdings
• Updated customer information is preserved for at least 6 years; the account record itself is furnished within 30 days of opening and refreshed at least every 36 months