Account Documentation and Disclosures

Opening customer accounts requires specific documentation and disclosures. Understanding these requirements ensures compliance with securities regulations and protects both the firm and the customer.

New Account Form

The new account form is the primary document for establishing a customer relationship:

Required Information

FINRA Rule 4512 Requirements

Specific information that must be obtained:

• Customer name and residence
• Whether customer is of legal age
• Occupation and employer name/address
• Whether customer is associated with another FINRA member
• Signature of registered rep introducing the account
• Signature of principal approving the account

Customer Agreement

The customer agreement is a contract that establishes the relationship:

Key Provisions

• Rights and obligations of both parties
• Authorization to execute transactions
• How disputes will be resolved (arbitration clause)
• Fee schedules
• Statement and confirmation delivery
• Applicable regulations

Arbitration Agreement

Most customer agreements include a pre-dispute arbitration clause:

• Customer agrees to arbitrate disputes with the firm
• FINRA arbitration is the typical venue
• Must be highlighted/boldface in agreement
• Customer must acknowledge understanding

Privacy Notices (Regulation S-P)

Initial Privacy Notice

Required at account opening, must disclose:

• Categories of personal information collected
• Categories of information disclosed to third parties
• How the firm protects customer information
• Right to opt out of certain disclosures

Annual Privacy Notice

Required annually unless:

• Firm only shares information when exceptions apply
• Privacy policy hasn't changed since last disclosure

2025 Update: SEC amended Regulation S-P to require 30-day customer notification after data breaches.

Opt-Out Rights

Customers must be given the opportunity to opt out of:

• Sharing nonpublic personal information with non-affiliated third parties
• Must be clear and conspicuous notice
• Reasonable method to exercise opt-out

Prospectus Requirements

For Series 6 products (mutual funds, variable annuities, variable life):

When to Deliver

Summary Prospectus

Since 2010, mutual funds can use a summary prospectus containing:

• Investment objectives and strategies
• Risks
• Performance history
• Fees and expenses
• Investment adviser information

The full (statutory) prospectus and SAI must be available upon request or online.

Trade Confirmations

Written confirmation required for each transaction:

Timing

• Sent at or before completion of the transaction
• Typically within one business day after trade date

Required Information

Account Statements

Frequency Requirements

Statement Contents

• Account positions (securities held)
• Transaction history
• Cash balances
• Market value of holdings
• Year-to-date summary

Fee Disclosures

Firms must disclose:

• Commission schedules
• Account maintenance fees
• Transaction fees
• Service charges
• How fees may be changed

Fees must be disclosed BEFORE they're charged, typically in the customer agreement and fee schedule.

Special Disclosures

For Variable Products

• Insurance company ratings
• Surrender charges and schedule
• Mortality and expense risk charges
• Subaccount expenses
• Free look period information

For Mutual Funds

• Fund objective and strategy
• Sales charges (front-end, back-end, 12b-1)
• Expense ratios
• Breakpoint opportunities

Electronic Delivery

Firms may deliver documents electronically if:

• Customer consents to electronic delivery
• Customer can access and retain documents
• Customer can revoke consent
• Firm maintains records of consent

Signature Requirements

What Requires Customer Signature

• New account application
• Customer agreement
• Margin agreement (if applicable)
• Options agreement (if applicable)
• Discretionary account authorization

Principal Approval

• All new accounts must be approved by a principal
• Must verify customer information
• Must determine suitability
• Must be documented

Key Exam Points

1. New account form - Contains identification, financial, and investment profile information
2. Privacy notice - Required at account opening and annually (Regulation S-P)
3. Opt-out rights - Customer can opt out of sharing with non-affiliated third parties
4. Prospectus - At or before sale for mutual funds and variable products
5. Trade confirmations - At or before completion of transaction
6. Statements - At least quarterly
7. Arbitration clause - Must be highlighted, customer must acknowledge