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.
http://www.sec.gov/answers/bd-persinfo.htm