Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives
Know the customer before you recommend
FINRA Rule 2090 and the care obligation (Reg BI for broker-dealers) require a reasonable basis for every recommendation. The new account form captures legal name, address, date of birth, SSN/TIN, employment, investment experience, annual income, net worth and liquid net worth, tax bracket, time horizon, risk tolerance, and investment objectives (income, growth, capital appreciation, capital preservation, speculation, tax deferral). Objectives must be specific; a vague entry like "growth and income" is a documentation red flag.
CIP and account registrations
The USA PATRIOT Act requires a Customer Identification Program: collect name, date of birth, address, and identification number, then verify identity through documents or non-documentary methods. Legal entity accounts also require beneficial ownership certification. Know the registrations: individual; joint tenants with right of survivorship (the survivor owns the whole account); tenants in common (each owner's share passes to that owner's estate); transfer on death; UGMA/UTMA (an irrevocable gift, with the custodian barred from using assets for personal benefit); trust; estate; corporate; partnership; and retirement accounts.
Traps: either JTWROS owner may draw checks; a UGMA/UTMA account cannot be pledged or margined; and discretionary authority requires written authorization plus principal approval before the first trade.
Worked example: A 79-year-old with $40,000 of liquid savings, a three-year horizon, and a 10-year surrender-charge variable annuity proposal funded with her entire savings fails suitability on liquidity, time horizon, and concentration - no matter how much she wants it.
Rule of thumb: match the product's liquidity and risk to the customer's liquid net worth and time horizon, not to their enthusiasm.