Friday’s Files: New Account Documents

Ben Dell’Orto, Spring 2018 IAC Student Intern

You have some money, and you’re ready to make it work for you, so you contact a broker to (hopefully) add a few digits to your sum. One of the earliest things you’ll receive is what FINRA calls a new account application. Though this is FINRA’s name for it, your broker might call it “a new account form, account opening form or something similar.”

The form asks for a lot of information you’d fill out before a visit to the doctor’s office, like your social security number, driver’s license number, and the information of a “trusted contact person.” The really critical things on this form include what your broker needs to create what FINRA calls an “investment profile” to determine your suitability. Your broker has an obligation to invest your money in a way that fits your specific profile, including your “age, other investments, financial situation and needs, tax status, investment objectives . . . [and] risk tolerance,” in other words, investments suitable for your individual needs.  

Keeping track of your new account statement for later will help you ensure that if your broker makes a purchase or sale of an investment which deviates from your situation, you’ll be able to show what that situation was. You’ll want this document to prove that your broker had full knowledge of your needs and that you didn’t give your broker incorrect information which he or she relied on. And believe it or not, brokers have been known to alter client documents years later, so keeping the original version you actually signed will ensure that your broker can’t go back later to change your profile to fit the investments.

You’ll also receive a “customer agreement” or “terms and conditions,” which are the rules that govern your account. These are important to keep a copy of, since any claim you make will be based on that contract between you and the firm. Like the new account application, these forms will dictate your broker’s responsibility, so it’s important to know just what it says.