Broker-Dealers: 
Why They Ask for Personal Information

Brokers generally request personal information, including financial and tax identification information, from their customers to comply with various laws and rules — including suitability rules imposed by self-regulatory organizations (SROs), record-keeping and other requirements under the federal securities laws, and anti-money laundering, anti-terrorist financing, and tax laws. Brokers not only request this information from new customers, but also from customers who have had long-standing relationships with their firms.

SUITABILITY

When you open your account, your broker will ask you to provide financial information to fulfill its obligations under the suitability rules imposed by the SROs. These suitability rules require that when your broker recommends that you buy or sell a particular security, your broker must have a reasonable basis for believing that the recommendation is suitable for you. In making this assessment, your broker must consider your risk tolerance, other security holdings, financial situation (income and net worth), financial needs, and investment objectives.

The major securities industry self-regulatory organizations have suitability rules. You'll find FINRA's suitability rule – Rule 2310 – and links to other FINRA materials concerning suitability in the FINRA Manual.

RECORD-KEEPING REQUIREMENTS

SEC Rule 17a-3(17) requires that brokerage firms create, for each account with a natural person as a customer, a record that includes the following information:

• Customer name


• Tax identification number (e.g., social security number)


• Address


• Telephone number


• Date of birth


• Occupation


• Whether the customer is employed by a brokerage firm


• Annual income


• Net Worth


• Account investment objectives

Your broker must make a good faith effort to obtain this information. However, the rule provides that the neglect, refusal, or inability of a customer to provide or update personal information excuses the broker from obtaining it.

Rule 17a-3(a)(17) also requires that the brokerage firm periodically send this information (with the exception of the customer’s tax identification number and date of birth) to its customers so that they can verify whether the information is accurate.  The firms have some flexibility as to how the account record may be sent to the customer.  For example, it may be incorporated into a customer’s account statement.  In May 2003, the Division of Market Regulation issued interpretive guidance concerning the books and records requirements.

The SROs also have recordkeeping requirements with which broker-dealers must comply (e.g., FINRA Rule 3110).  One of the purposes of the account records requirement is to ensure the firms have a current understanding of their customers’ financial situation and investment objectives.

ANTI-MONEY LAUNDERING/ANTI-TERRORIST FINANCING REQUIREMENTS

Your broker must also comply with the customer identification rule the SEC issued jointly with the Department of the Treasury to implement Section 326 of the USA Patriot Act of 2001.  This rule requires brokers to implement reasonable procedures to verify the identity of any person seeking to open an account, to the extent reasonable and practicable; to maintain records of the information used to verify the person's identity; and to determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to broker-dealers by any government agency. Under this rule, brokers are required to collect certain identifying information from customers opening new accounts including, at least, the following information:

• Customer name


• Address


• Identification number (or SSN for U.S. citizens)


• Date of birth

This requirement sets a floor as to what information brokers must obtain and, consequently, brokers may require that customers provide them with more information for purposes of this rule.