Unit 3-Customer Accounts Flashcards
When does new account info need to be collected?
At or before the time of first municipal transaction
What is the minimum information needed to open a new account?
-Name and physical address
-Occupation (including name and address of employer)
-SSN or other tax ID
-DOB
-Is the person affiliated?
-Citizenship
-Signatures of introducing rep and approving principal
-Discreationary authority (if applicable)
-Hypothecation (if app)
-Release of account info to 3rd party (if app)
NOTE: This info needs to be on file by SETTLEMENT of first trade. An account can be opened without an SSN if the client is in process of acquiring one
Suitability in New Account
- An account may be opened without suitability info on file. However, no recommendations can be made
- The MSRB views a rep bringing a muni issue to the attention of a client is implying a recommenedation
How to handle an unsuitable unsolicited trade?
- Rep can still place trade after he has informed client he believes trade is unsuitable
- Trade should be marked “unsolicited”
- Firms may require clients to sign letter acknowledging rep’s view that trade is unsuitable
What minimum signatures are required?
- Introducing rep and principal approving
- While the client’s signature is technically not required, almost all firms will require it as a part of the pre-dispute arbitration
- NOTE: Principal can be a municipal securities principal, a muni sales principal, or a general principal
Definition of Institution
-Bank, S&L, insurance company, RIA
-Investment advisor registered under the Act of 1940 or with the appropriate state administrator
-Any entity with $50+ million
NOTE: An institution can be a person, corp, partnership, trust, etc.
Minimum Requirements for Inst. Account
- Name an business address
- Institution’s Tax ID
- Suitability Info (tax bracket is NOT needed for Inst)
- Signature of authorizes agent
- Principal signature
- As applicable: Discretion, hypothecation, etc.
Control Relationships
If a muni firm is owned/controlled by an issuer, all recommendations of the issuer’s securities must be disclosed to a customer in writing by settlement (usually on confirm)
NOTE: On discretionary accounts, a member must still get authorization from client to place trades for issues in which a control relationship exists
Third Party Trading
- An authorized body (via POA) besides client and member has the ability to trade account (fiduciary)
- Can be terminated at any time via written notice or on death
- All disbursements must be made to client/entity name
Approval/Review of Discretionary accounts
- All discretion must be approved by an S10 or S53
- All order tickets should be reviewed promptly after execution
- Frequent reviews should be conducted to identify potential abuses (churning)
Multiple Accounts
If a client wishes to have multiple accounts with the same registration, the accounts can be consolidated for magic purposes and each is seen as a guarantee of the others (guaranteed accounts)
-The account owner must attest in writing that no other person or entity has an interest in the subsequent accounts
Partnership Accounts
- A UA with 2 or more individuals
- Partnership agreement is needed to identify who has trading authority
- Partnership agreements typically are resubmitted annually to make sure member’s records are up to date
Margin Trading in Corps and Partnership
Only permissible if explicitly stated in Corp Resolution or Partnership Agreement
Accounts for Affiliated Persons
Before account can be opened, firm must:
-Contact employing firm in writing about the pending account
-Follow any instructions by the employing firm
-If approved, member must supply dupe confirms
NOTE: Rule also applies to spouses and minor children
NOTE 2: It is not necessary for the initial rep to ask about affiliation status at time account is opened
Fiduciary Accounts
- Executors, guardians, conservators, trustees, receivers (bankruptcies)
- Fiduciaries are 3rd parties and therefore cannot give discretionary authority. They must place trades in the account
- Most states limit fiduciaries to the Prudent Man Rule or Legal Lists (usually investment grade debt only)
Trust Account Rules
- Copy of Trust Agreement is needed
- Margin not allowed unless expressly permitted
Guardian Account Rules
- Copy of Court Order is needed
- In most states, account must be opened within 60 days of court order. Clearing firms have a right to reject account until a current court order is produced
UTMA/UGMA Rules
- If donor and custodian are same, they cannot charge a fee
- Minor is responsible for taxes
- While account can only have 1 minor and 1 custodian, a successor custodian can be named
- Securities are in the name of the custodian, but legally belong to minor
- Margin and collateral lending not permitted
- All disbursements must be made for benefit of minor and must be documented
- Cash must be reinvested within a reasonable time
- Minor has a right to sue custodian for malpractice
- If minor dies, assets go to minor’s estate
DVP/RVP Rules
Cash and Securities for a trade are settled at an agent bank
-If accepting DVP accounts, member must have name an address of agent bank as well as customer account there
-DVP Trades settle T+2. However, if there is a delay )other than the inability to pay/deliver, member has 35 calendar days to receive payment
NOTE: Member firm does NOT need to reach out to agent bank prior to settlement to verify funds or securities delivery
