7.1 Account Records, Trusted Contacts, Confirmations, and Statements

Opening and Maintaining the Record

FINRA Rule 4512 requires a member to maintain the customer's name and residence; whether the customer is of legal age; the name of the associated person responsible for the account, if any; and the signature of the partner, officer or manager who accepts the account. The record must identify persons authorized to transact and the basis of their authority. Legal-entity accounts require governing documents and authority appropriate to the entity rather than assumptions based on a job title.

The firm must make reasonable efforts to obtain the name and contact information of a trusted contact person for a non-institutional account. The customer is not required to provide one, and refusal alone does not bar account opening. The firm must disclose that it may contact the person about administration of the account, inability to reach the customer, possible financial exploitation, or identity and contact information for legal representatives. A trusted contact is not thereby granted trading authority or power of attorney.

Temporary Holds for Financial Exploitation

Rule 2165 supplies a safe harbor when a member reasonably believes that financial exploitation of a specified adult—generally a person age 65 or older or an adult the firm reasonably believes has a covered impairment—has occurred, is occurring, has been attempted or will be attempted. The rule can cover a securities transaction or a disbursement. The firm should not block unrelated legitimate activity for which it lacks the required reasonable belief.

The initial hold expires no later than 15 business days after placement. Within two business days, the firm must provide the required notice and reason to authorized parties and the trusted contact, except a person reasonably believed to be involved, and immediately begin an internal review. If the review supports the belief, the firm may extend for 10 additional business days. It may extend for another 30 business days when it has reported the matter to a qualifying state regulator or agency or court, producing a possible 55-business-day total. A regulator, agency or court may terminate or further extend the hold. Records must support the belief, notices, review and each extension.

Confirmations and Statements

SEC Rule 10b-10 requires a written confirmation at or before completion of a securities transaction. Depending on the transaction, it identifies the customer and security, trade date, price and quantity, the broker-dealer's capacity, and compensation or the availability of specified information. FINRA Rule 2232 adds required information in its covered transactions. Periodic-plan transactions in investment-company securities may use the applicable Rule 10b-10 periodic-reporting alternative when its conditions are met.

FINRA Rule 2231 generally requires a general securities member to send statements at least quarterly to each customer whose account had a security position, money balance or account activity during the period. The statement must describe positions, money balances and account activity; tell the customer to report any inaccuracy or discrepancy promptly to the firm, and to both firms when an introducing and a carrying firm service the account; and advise the customer to re-confirm oral communications in writing to protect the customer's rights, including rights under SIPA. A firm or clearing arrangement may send statements more frequently, but activity does not create a universal FINRA monthly-statement rule.

Keeping the Account Record Current (SEC Rule 17a-3(a)(17))

For each account with a natural-person customer, SEC Rule 17a-3(a)(17) requires an account record showing the customer's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is associated with a broker-dealer), annual income, net worth excluding the primary residence, and the account's investment objectives. The record must show whether the responsible associated person signed it and whether a principal approved or accepted it. The firm must:

• send the customer a copy of the account record, or an alternate document, within 30 days of account opening and then at intervals of no more than 36 months, asking the customer to mark corrections and report future changes;
• send notice of a name or address change to the customer's old address (or to each joint owner) and to the responsible associated person within 30 days after receiving notice of the change; and
• send an updated account record within 30 days after a change in investment objectives.

A customer's refusal or inability to provide information excuses the firm from obtaining it, but the firm should document the attempt. The old-address notice is an anti-fraud control: a forged address change is often caught because the real customer receives the notice. Rule 3110(c)(2) ties branch inspections to these confirmations (Section 9.1).

Annual BrokerCheck Notice (Rule 2267)

At least once every calendar year, each member must give customers in writing the FINRA BrokerCheck hotline number, FINRA's website address, and a statement that an investor brochure describing BrokerCheck is available. A member that only introduces accounts held directly at a non-member, such as a fund's transfer agent, and does not carry accounts or hold customer property may instead provide the information at or before the customer's first purchase. A member whose carrying firm sends the notice is exempt.

Principal Review

The principal should compare transaction records with the account's registration and authority, investigate returned mail and undeliverable electronic notices, and test whether confirmations and statements accurately reflect the books. Changes to address, ownership, beneficiaries, trusted contacts or authority merit authentication and, when risk warrants, out-of-band notice. A customer's silence after receiving a statement never converts an unauthorized trade into an authorized one.

Reconciliation and Exceptions

Account statements should reconcile to the firm's books and to the clearing firm or product sponsor. Differences in share balances, cost information, cash, registration or transaction dates require documented resolution. Direct mutual-fund business can create special challenges because the transfer agent may hold the official position while the broker-dealer maintains supervisory records.

Returned mail, repeated electronic bounces, duplicate addresses and a new trusted contact followed by a disbursement are exception signals. The firm should authenticate changes through established contact information and avoid revealing sensitive account details beyond the trusted-contact authorization.