Requirements for Opening Customer Accounts

With account types and registration understood, you now need to know what information must be collected and who must sign off before the first trade can be placed.

What Information Must Be on File for Every Account?

The customer-account-information rule requires members to maintain the following for each customer account:

• Customer's name and residence (principal address)
• Whether the customer is of legal age
• Name of the associated person (registered representative) responsible for the account, and if more than one person shares responsibility, a record of each person's scope of responsibility
• Signature of the partner, officer, or manager denoting account approval
• If the customer is a corporation, partnership, or other legal entity: name, address, and identification of authorized persons

Account information must generally be preserved for six years after the account closes or the information is updated. An institutional account (a bank, insurance company, registered investment company, registered investment adviser, or any other person with at least $50 million in total assets) is exempt from some of these requirements, including the trusted contact person.

What Is a Trusted Contact Person (TCP)?

• Firms must make a reasonable effort to obtain the name and contact information for a trusted contact person age 18 or older for each non-institutional customer account
• At account opening, the firm must give the customer a written disclosure (which may be electronic) explaining that the firm may contact the TCP and disclose account information for the reasons below
• The TCP can be contacted to:
  • Address possible financial exploitation
  • Confirm the customer's contact information, health status, or identity of any legal guardian, executor, trustee, or power of attorney (POA) holder
• A customer may, but is not required to, provide a TCP
• The TCP has no authority over the account (cannot make trades or act as POA)

Exam Tip: Gotchas

• The trusted contact person is NOT required. The firm must make a "reasonable effort" to obtain one, but the customer can decline.
• The TCP has zero trading authority. Their role is strictly informational: confirming contact details and flagging potential exploitation.
• The written TCP disclosure is required even when the customer declines to name one. The firm must explain the TCP option at account opening regardless of the customer's answer.

What Must the New Account Form Include?

The new account form must be completed before the first trade is executed.

What Information Is Collected?

• Name, address, date of birth
• Social Security Number / Tax Identification Number (SSN/TIN)
• Citizenship
• Employment status
• Investment objectives
• Risk tolerance
• Net worth and annual income
• Liquid net worth

Who Signs What?

• The customer must receive a copy of the account record within 30 days of account opening
• The customer must also receive an updated copy within 30 days of any change

Exam Tip: Gotchas

• The customer does NOT sign the new account form. The RR and a principal both must sign.
• Customer receives a copy; RR and principal sign. The customer gets the record, but does not need to approve it with a signature.

Who Can Authorize a Withdrawal From a Customer's Bank Account?

• No member may obtain or submit a check, draft, or other negotiable instrument drawn from a customer's bank account without express written authorization
• Authorization records must be preserved for 3 years after the authorization expires
• The customer's signature on the instrument itself satisfies the written authorization requirement

Exam Tip: Gotchas

• Express written authorization is required before accessing a customer's bank account. A verbal agreement is not sufficient.
• The customer's signature on the check itself counts as authorization. No separate form is needed if the customer signs the instrument.
• Authorization records must be kept for 3 years after the authorization expires, not 3 years from the date of the transaction.

What Should You Check on Exam Day?

• The customer-account-information rule applies to every account; the trusted contact person and some other pieces do not apply to institutional accounts ($50 million or more in assets)
• The TCP is optional for the customer but the firm must still disclose the option in writing at account opening
• Signature rule: RR and principal sign, customer does not; the customer only receives a copy, within 30 days
• Negotiable-instrument authorization must be written, and the retention clock is 3 years after the authorization expires, not 3 years from any single transaction