3.5 Account Registration

When opening a brokerage account, firms must collect and maintain specific customer information. FINRA Rule 4512 governs these requirements.

FINRA Rule 4512: Customer Account Information

FINRA Rule 4512 requires broker-dealers to obtain and maintain "essential facts" about each customer account.

Required Information for All Accounts

Customer name: Required

Residence address: Required (P.O. Box not sufficient alone)

Date of birth: Required

Legal age verification: Required

Tax ID / SSN: Required

Occupation: Required

Employer name and address: If employed

Associated person(s) responsible: Required

Additional Information for Margin Accounts

Beyond basic requirements, margin accounts require:

Net worth

Annual income

Investment experience

Investment objectives

Signed margin agreement

Trusted Contact Person (TCP)

FINRA Rule 4512 requires firms to make reasonable efforts to obtain a Trusted Contact Person for non-institutional accounts.

TCP Requirements

Who: Person 18 or older

Relationship: Someone customer trusts

Purpose: Contact for concerns about customer

Required: Reasonable effort to obtain

When Firms May Contact TCP

Address possible financial exploitation

Confirm customer contact information

Confirm health status

Identify legal guardian or power of attorney

Important: The TCP is NOT authorized to transact in the account. They are only a contact resource.

Purpose of TCP Rule

The TCP provision helps protect investors, especially seniors, from:

Financial exploitation

Diminished capacity issues

Unauthorized account access

Know Your Customer (KYC)

The Know Your Customer rule requires firms to:

1. Use reasonable diligence to know the customer

2. Understand essential facts about the customer

3. Know the customer's financial situation and needs

Essential Facts Include:

Identity: Name, address, DOB, SSN

Financial: Income, net worth, liquid assets

Investment: Experience, objectives, risk tolerance

Employment: Employer, occupation

Customer Identification Program (CIP)

Under the USA PATRIOT Act, firms must verify customer identity:

CIP Requirements

Documents Accepted: Documents (such as an unexpired government-issued photo ID) and/or non-documentary methods

Information Verified: Name, DOB, address, SSN

Timing: Collect information before opening; verify within a reasonable time before or after opening

Purpose: Prevent money laundering/terrorism

Acceptable ID Documents

Driver's license

Passport

State-issued ID

Military ID

Account Documentation

New Account Form

Contains all required customer information:

Personal information (name, address, DOB)

Employment information

Financial information

Investment profile

Signatures

Customer Agreement

Outlines terms and conditions including:

Rights and responsibilities

Fee schedules

Arbitration agreement

Margin disclosure (if applicable)

Required Signatures

New account form: Principal and customer

Margin agreement: Customer

Options agreement: Customer

Discretionary authorization: Customer

Account Approval Process

Steps to Open an Account

1. Application - Customer completes new account form

2. Verification - Firm verifies identity (CIP)

3. Review - Associated person reviews for completeness

4. Approval - Principal (supervisor) approves

5. Documentation - Customer receives copies

Principal Approval

A registered principal must approve:

New account openings

All trades in the account (typically)

Changes to account information

Record Retention Requirements

FINRA and SEC rules specify retention periods:

Account records: 6 years

Customer information updates: 6 years after update

Original/final account info: 6 years after account closes

Trade confirmations: 3 years

Communications: 3 years

Note: "Maintain" = current/in-use records. "Preserve" = no longer current records.

Account Updates

When Updates Are Required

Customer notifies firm of changes

Annual review/verification

Before making recommendations

When circumstances indicate changes

Information That May Change

Address

Employment status

Income/net worth

Investment objectives

Risk tolerance

Institutional vs. Non-Institutional Accounts

Different requirements apply based on account type:

Institutional Account (per FINRA)

Includes accounts of:

Banks and insurance companies

Registered investment companies

Registered investment advisers

Entities with $50+ million in assets

Different Treatment

TCP: Institutional - not required; non-institutional - required effort

Suitability: Institutional - different standards; non-institutional - full analysis

Disclosure: Institutional - may be modified; non-institutional - full required

Account Transfer (ACATS)

The Automated Customer Account Transfer Service (ACATS) enables account transfers between broker-dealers:

Day 1: Receiving firm initiates transfer

Day 3: Carrying firm validates/rejects

Day 6: Transfer completed

Key Takeaways

FINRA Rule 4512 requires essential customer information

Trusted Contact Person protects vulnerable investors

CIP verifies identity under USA PATRIOT Act

Principal approval required for new accounts

Records must be maintained for 6 years

Updates required when circumstances change