Welcome to Account Opening Requirements: the recordkeeping, disclosure, and fiduciary rules that govern every account a private-placement representative helps open, from an individual investor's first ticket to a retirement plan's private-placement allocation.
Exam Weight: 2 scored items within Function 2 (9 items / 18% of exam)
What You'll Learn
In this unit, you'll cover:
- Institutional and Discretionary Accounts: which account holders qualify as institutional without a size test, which need to clear a $50 million threshold, and the recordkeeping duty a discretionary account triggers
- Required Customer Account Information: the identifying and acceptance information every account record must hold, and the information the firm must make reasonable efforts to obtain before the initial transaction settles
- Trusted Contact Person and Recordkeeping Retention: the written disclosure a firm must give at account opening, and how long updated and unchanged account information must be kept
- Account Registration Changes and Internal Transfers: what obligates a firm to update an account record, and why reassigning an account to a different associated person is itself a recordkeeping event
- Predispute Arbitration Agreements in Account Paperwork: the required disclosure language, the delivery clocks, the conditions an arbitration agreement may never impose, and the class-action carve-out
- The Employee Retirement Income Security Act (ERISA) and the Retirement-Plan Account: which plans ERISA covers, who is a plan fiduciary, the duties that constrain a fiduciary's decisions, the prohibited-transaction rules, and why a private placement is a hard fit for an ERISA plan
Why This Matters
Every account a representative opens creates a paper trail the firm must build and keep. Getting a piece of that trail wrong, a missing principal signature, an un-highlighted arbitration clause, a retirement-plan sale that never checks the plan's fiduciary duties, exposes the firm to a finding that has nothing to do with whether the underlying offering was suitable.
Retirement-plan accounts raise the stakes further. A plan fiduciary who buys an illiquid private placement without weighing it against the plan's diversification and prudence duties can create a problem for the plan, the fiduciary, and the representative who sold it.
Let's start with institutional and discretionary accounts.