A:

According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal information: suitability, record-keeping requirements and anti-terrorist/anti-money laundering laws.

Suitability refers to how your financial situation matches the advice and recommendations that are given to you by your broker. The suitability requirement comes from the self-regulatory organizations (SRO) that regulate brokers. By understanding your personal financial situation, the broker must only provide you with recommendations that are suitable for your preferences and investment objectives. If the broker does not do that they will be violating rules laid out by the National Association of Securities Dealers (NASD).

Record-keeping requirements refers to just that, record keeping. Rules set out by the SEC require brokers to maintain an up-to-date account of your personal information. The most important information that the broker must have is the client name, Social Security Number (SSN), net worth and account investment objectives among others. If the client refuses to provide such information, the broker is excused from following the rule, however they must be able to prove that an effort must have been made to retrieve the information.

Finally the broker must provide client information to meet anti-money laundering and anti-terrorist requirements. These requirements ensure that by requesting adequate information the broker must be able to verify their client's identity. The client's personal information is cross-checked with any lists of known or suspected terrorists. These are recent requirements that have arisen out of the USA Patriot Act of 2001.

To learn more, see Brokers and Online Trading, Shopping For A Financial Advisor and Tips For Resolving Disputes With Your Financial Advisor.

RELATED FAQS
  1. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  2. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  3. Does a broker always have to buy a stock if I want to sell it?

    There are certain times when a broker must purchase the stock that you are selling. For example, if the broker is a market ... Read Answer >>
Related Articles
  1. Investing

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one. Read about how to choose your first broker here.
  2. Investing

    How To Choose The Right Online Trading Broker

    The online broker market is becoming more competitive, but differences exist in services that can help traders choose the broker that’s right for them.
  3. Managing Wealth

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  4. Financial Advisor

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.
  5. Investing

    Discount Broker

    A stockbroker who carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice.
  6. Personal Finance

    Research Report Red Flags For Brokers

    Discover how to look past analysts' ratings to find winning stocks for your clients.
  7. Trading

    The Best Low-Cost, Web-Based Trading Brokers

    With this table, investors can differentiate between top low-cost, web-based trading brokers by price, capabilities, and offerings.
  8. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  9. Trading

    Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.
  10. Investing

    What Does a Broker Do?

    In the investment world, broker is a term used to refer to an individual or entity that helps facilitate trading in financial securities.
RELATED TERMS
  1. Give Up

    A procedure in securities or commodities trading where the executing ...
  2. Carrying Broker

    A commodities or securities broker who provides back office functions ...
  3. Broker

    1. An individual or firm that charges a fee or commission for ...
  4. Forex Broker

    Firms that provide currency traders with access to a trading ...
  5. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  6. Two Dollar Broker

    A floor broker who executes orders for other brokers who cannot ...
Hot Definitions
  1. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  2. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  3. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  4. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  5. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
Trading Center