SEC rule for brokers to "verify information" every 3yrs/36mos?

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I came across brokerage firms with national reach in the US who send letters to individual account holders requesting updated personal information: contact info, occupation, investment preferences, income, net worth, etc.

One firm cited the "SEC Books and Records rule." 

I believe these letters to be misleading account holders.  Aside from contact information, I do not think there are any US regulations requiring firms or account holders to share/collect/maintain this information. 

Instead, I believe such brokerage firms are collecting personal information for sales and marketing purposes.  There should be clarification in these letters that the requests for information are also for marketing activities and that there is otherwise no other need to collect/share such information with the brokerages other than to find financial products the client might want to buy.

Am I wrong?

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Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934
https://www.sec.gov/rules/final/34-44992.htm

I didn't read all but there are lots of references to 36 month rules in there.

including : "the periodic updating of an account that must occur at least once every 36 months"

Which firms? I've never received anything like that. But if I did, I agree -- I would only provide my address ("contact information" may include phone number or email address, but I would not include those -- my brokerage shouldn't be calling me). Everything else sounds like ad profiling. If they insisted under a threat of closing the account, I'd use "not applicable" and $0.

ETA... Found it at the above link:
SEC said: The amendments also impose a requirement that broker-dealers obtain the following additional information for each account with a natural person as the customer: the customer name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth, investment objectives, and the signature of the associated person and a principal. Present Rule 17a-3(a)(9) already requires that a firm maintain a record of a customer's name and address.Actual text in section (17)(i)(A) under § 240.17a-3.

scripta said:   Which firms?
..
..

  
Thank you for information supporting my suspicion. 

I am a privacy nut so I prefer not to name the two firms on this forum, but will likely report the two firms to the SEC or other regulatory agencies that might be interested.  I came across forms from the firms as I was helping someone unfamiliar with investment products with tracking past purchases.  The forms were sent in regular USPS mail.

The forms go beyond contact information, asking for employer, occupation, income, net worth, and more.  In my opinion, the forms should be specific about what information is "required by the Securities and Exchange Commission" and what information is optional.

I spoke to a representative from one of the firms who claimed that certain demographic information missing in their database was required.  I was upset by the request but the representative was convincing.  We divulged the information, unfortunately. 

I'm pretty sure they don't care what you tell them, just that they have their blanks filled in.  If you say you're retired, there are fewer blanks .  Less annoying brokers will pop up your profile every year or two and ask you to review it for any changes and you can just it the "it's ok" button and be done for another year or two.

OP -- I think you only read what I originally posted and not the update. I didn't confirm your suspicions, I confirmed that "the customer name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth, investment objectives, and the signature" are in fact required by the SEC regulation.

There are new DOL rules that financial advisors will need to follow that begin in about a month or two...

The DOL rules may or may not go into effect depending upon what the new administration does.

Rules also make the broker responsible to judge the appropriateness and risk tolerance of investments for each client. For example, futures and commodities are not appropriate for me. If the broker does not throttle my trade attempts in those markets, that broker could face sanctions.

scripta said:   OP -- I think you only read what I originally posted and not the update. I didn't confirm your suspicions, I confirmed that "the customer name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth, investment objectives, and the signature" are in fact required by the SEC regulation.
My sibling had a brokerage account that was gifted stock from our grandparents.   They didn't login or check the account for over 36 months (and had ignored the requests to update personal information by mail).

They received a certified letter from the brokerage that they were turning over all the assets in the account to the state, because they needed some form of positive contact with the customer every 3 years.  Sibling called the brokerage after receiving the letter and they said that "positive contact" was a phone call, updating personal info by mail OR logging into the online account one time.

I can't believe my sibling went over 3 years without logging in once (but the 1099s were always mailed).

Just a data point if you have an account you don't check.  
 

I just got this letter from ETrade . Class action time?

lonestarguy said:   I just got this letter from ETrade  . Class action time?
  

For what?  Complying with the law? If you are paranoid to furnish basic info for your account, you do have a choice.  Close your account and do not ever reopen one again.  I hear burying money in the backyard is workable.


OP:  Tin foil was on sale at Safeway.  Better head there now before they run out.

 

I wish you guys would quit posting stupid stuff like this.  My official retirement letter from the Federal Public Defenders A Panel is sitting on Judge Garcia's desk.  Don't give him the excuse to postpone it for one more case because they don't have enough staff to represent stupid white collar criminals.

quaters said:   
scripta said:   OP -- I think you only read what I originally posted and not the update. I didn't confirm your suspicions, I confirmed that "the customer name, tax identification number, address, telephone number, date of birth, employment status, annual income, net worth, investment objectives, and the signature" are in fact required by the SEC regulation.
My sibling had a brokerage account that was gifted stock from our grandparents.   They didn't login or check the account for over 36 months (and had ignored the requests to update personal information by mail).

They received a certified letter from the brokerage that they were turning over all the assets in the account to the state, because they needed some form of positive contact with the customer every 3 years.  Sibling called the brokerage after receiving the letter and they said that "positive contact" was a phone call, updating personal info by mail OR logging into the online account one time.

I can't believe my sibling went over 3 years without logging in once (but the 1099s were always mailed).

Just a data point if you have an account you don't check.  

  State escheatment rules may play into how a broker tried to comply with SEC rules.

Keep in mind that the brokerages are usually not told exactly how to comply with SEC rules, so their compliance officers create compliance procedures that match their risk tolerance. Some brokers may play very tight with all the rules, others may play very loose with the rules, while others may play very tight with some rules to prevent extra scrutiny of other parts of their operations where they are playing very loose with the rules.

In addition, sometimes brokerages and banks make their compliance rules very tight after they've been caught and/or fined for playing loose. Anyone here who opened an HSBC checking account for the bonus knows that they asked all kinds of questions that no other bank asks during the opening process because they were caught up in a multi-billion dollar money laundering scandal:

http://www.forbes.com/sites/afontevecchia/2012/07/16/hsbc-helped...

Signing up for the HSBC bank bonus offer IMO is more trouble than it is worth. I say that despite one month later, they took my initial deposit and opened the account.

JW10 said:   Rules also make the broker responsible to judge the appropriateness and risk tolerance of investments for each client. For example, futures and commodities are not appropriate for me. If the broker does not throttle my trade attempts in those markets, that broker could face sanctions.
  That is generally only true for accounts that are managed by the broker.  Brokerage firms generally are not required to set suitability standards for self-directed brokerage accounts.  The fiduciary standard is currently for investment advisory accounts only, although that could change depending on the DOL rule.

There are general restrictions on trading authority in derivative products such as options, futures, and commodities.  Setting of options levels is generally more of a business decision by the broker, as there is no specific requirement of net worth, income, sophistication, etc for setting your options level.  There may be other restrictions on your account as well that are generally business decisions, but others are based upon the free riding rules (Reg T), day trading rules, etc.

Futures and Commodities accounts are regulated by the CFTC, not the SEC.  

Moral of the story?  Running a broker-dealer is a lot of work.

Hi, real life securities attorney here. I am not your attorney and this is not legal advice.

You got a legitimate request. Broker Dealers have obligations under Finra Rules, Bank Secrecy Act, Patriot Act, and SEC rules to collect client information for various purposes.

The two most likely scenarios are either a know your client requirement to ensure that they can monitor anticipated activity (even in self directed accounts) or anti money laundering efforts (enhanced monitoring for high risk actors)

They are not selling your info to anyone, and you don't have to tell anyone your life's details, but they may drop you as a client if their compliance officer carries a big stick.



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