3.5 Account Registration
Key Takeaways
FINRA Rule 4512 requires firms to obtain essential customer information including name, address, date of birth, SSN, and occupation
Firms must make reasonable efforts to obtain a Trusted Contact Person (TCP) for non-institutional accounts to help protect against financial exploitation
The Customer Identification Program (CIP) under the USA PATRIOT Act requires firms to collect identifying information before opening an account and to verify identity, using documents, non-documentary methods or both, within a reasonable time before or after the account is opened
Customer account records must be maintained for 6 years after the account is closed
The TCP may be contacted for concerns about customer exploitation or diminished capacity but has no authority to transact in the account
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
| Information | Requirement |
|---|---|
| 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
| Aspect | Requirement |
|---|---|
| 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:
- Use reasonable diligence to know the customer
- Understand essential facts about the customer
- Know the customer's financial situation and needs
Essential Facts Include:
| Category | Examples |
|---|---|
| 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
| Requirement | Details |
|---|---|
| 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
| Document | Signature Required |
|---|---|
| New account form | Principal and customer |
| Margin agreement | Customer |
| Options agreement | Customer |
| Discretionary authorization | Customer |
Account Approval Process
Steps to Open an Account
- Application - Customer completes new account form
- Verification - Firm verifies identity (CIP)
- Review - Associated person reviews for completeness
- Approval - Principal (supervisor) approves
- 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:
| Record Type | Retention Period |
|---|---|
| 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
| Requirement | Institutional | Non-Institutional |
|---|---|---|
| TCP | Not required | Required effort |
| Suitability | Different standards | Full analysis |
| Disclosure | May be modified | Full required |
Account Transfer (ACATS)
The Automated Customer Account Transfer Service (ACATS) enables account transfers between broker-dealers:
| Timeline | Event |
|---|---|
| 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
Under FINRA Rule 4512, which of the following is the firm required to make a reasonable effort to obtain for non-institutional customer accounts?
Power of attorney authorization
Trusted Contact Person information
Annual financial statements
Investment adviser registration
How long must a broker-dealer maintain customer account records after the account is closed?
3 years
4 years
6 years
10 years
The Trusted Contact Person (TCP) for an account:
Has authority to make trades in the account
Must be related to the account holder
Is contacted to help protect the customer from exploitation
Must be a registered representative
Sections you finish are checked off in the contents.