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 is exempt from some of these requirements, including the trusted contact person. There are three independent paths to institutional status, and only the third has a size test:

1. A bank, savings and loan association, insurance company, or registered investment company - any size
2. A registered investment adviser (SEC-registered or state-registered) - any size
3. Any other person, natural or entity, with total assets of at least $50 million

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.

One narrow exception sits inside the customer-account-information rule. For three items the firm must make reasonable efforts to obtain them by settlement of the first transaction rather than before it: the customer's Social Security Number or Tax Identification Number, their occupation and employer, and whether they are an associated person of another member. Everything else belongs on the form before the trade.

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, and again at intervals no greater than 36 months after that, even if nothing changes
• Two changes start their own 30-day clock for a fresh copy or notice: a change of name or address, and a change in investment objectives

Exam Tip: Gotchas

• The customer does NOT sign the new account form. The rule requires the signature of the partner, officer or manager who accepts the account. Firms have the RR sign as well, but the signature the rule names is the accepting principal's.
• Customer receives a copy; the accepting principal signs. The customer gets the record, but does not need to approve it with a signature.
• The 30-day re-notice is not triggered by every change. It covers a name or address change and an investment-objective change. The routine refresh is the separate 36-month cycle.
• A name-or-address notice goes to the OLD address. That is how the customer learns about a change they did not make.

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
• The customer's signature on the instrument itself satisfies the written authorization requirement
• Where the authorization is separate from the instrument, the firm must preserve it for 3 years after the authorization expires
• The rule does not require the firm to keep copies of negotiable instruments the customer signed

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.
• The 3-year clock runs on a SEPARATE authorization only, from the date it expires, not from the date of any transaction. A check the customer signed is its own authorization, and the rule does not require the firm to keep a copy of it.

What Should You Check on Exam Day?

• The trusted contact person and some other pieces do not apply to institutional accounts. Only the "any other person" path carries the $50 million size test; a bank, insurer, fund or adviser is institutional at any size
• The TCP is optional for the customer but the firm must still disclose the option in writing at account opening
• Signature rule: the accepting principal signs, the customer does not; the customer only receives a copy, within 30 days
• Negotiable-instrument authorization must be written; where it is a separate document the retention clock is 3 years after that authorization expires, and a customer-signed instrument needs no copy kept