Opening Accounts: Financial Profile, Objectives and Suitability
Know the customer before the recommendation
Account opening begins with identity: the Customer Identification Program (Patriot Act) requires name, date of birth, address and an identification number, verified within a reasonable time. Then comes the substance - FINRA Rule 2090 (know your customer) and Rule 2111 (suitability), plus Reg BI's care obligation for retail customers.
Collect the full financial profile: age, employment, income, net worth, liquid net worth, tax bracket, existing holdings, investment experience, time horizon, liquidity needs and risk tolerance. Then identify the objective - growth, income, capital preservation or speculation. The classic exam trap is a mismatch: a 78-year-old retiree with modest liquid net worth and a stated "aggressive growth" objective, or a customer with a short horizon asking for a long-duration bond fund. Reg BI also requires considering reasonably available alternatives and costs, and delivering Form CRS to retail customers.
Account types carry their own documentation: joint tenants with right of survivorship versus tenants in common, UTMA/UGMA custodial accounts, trusts, estates, corporate and partnership accounts, margin accounts (margin agreement with loan consent and hypothecation language), and options accounts (approval level required). A discretionary account needs written customer authorization and written principal approval - verbal discretion is never enough. FINRA Rule 4512 also requires a reasonable effort to obtain a trusted contact person for natural persons, a favorite of senior-investor questions.
Worked example. A 70-year-old wants 100% of a $150,000 account in a single small-cap fund for a goal two years away. Age is not the test; the mismatch between a two-year horizon and small-cap volatility - and the concentration - is what makes the recommendation unsuitable.