Essential Facts About Customers and Customer Relationships
Before a registered representative can recommend anything, there is a foundational obligation: gather the essential facts about the customer and the customer relationship.
The Know-Your-Customer Foundation
- FINRA Rule 2090 requires members to use reasonable diligence to know and retain the essential facts about every customer
- "Essential facts" include financial information, personal circumstances, and any other information the customer discloses that is relevant to making suitable recommendations
- This obligation applies to the customer and the customer relationship - both matter
What Are Essential Facts?
Essential facts are not limited to a fixed checklist. They include:
- Financial information: Income, net worth, assets, liabilities
- Personal circumstances: Age, employment, family situation, investment experience
- Relationship context: The nature of the account, who controls trading decisions, and what authority has been granted
- Customer disclosures: Any additional information the customer volunteers that is relevant to recommendations
The information gathered forms the basis of the customer's investment profile, which drives all suitability and best interest determinations going forward.
Exam Tip: Gotchas
- Essential facts are not limited to a preset list. The customer may disclose additional relevant information that must be considered.
- The obligation is ongoing, not one-time. Changes in a customer's facts require reassessment of suitability.
The Customer Relationship Dimension
The obligation extends beyond the individual to the relationship structure:
- A customer who trades only in their own account has a straightforward relationship profile
- A customer who holds trading authorization over a family member's account has a different relationship profile
- A fiduciary managing someone else's money (e.g., a trustee) introduces additional considerations about whose objectives and risk tolerance apply
Exam Tip: Gotchas
- "Customer" and "customer relationship" are separate dimensions. If a customer trades in their own account and also holds power of attorney over a parent's account, those are two different relationship profiles requiring separate suitability analysis.