Finra Rules Drive Account Opening Upgrades

Terry Flanagan

New rules that kicked in last July are driving standardization in the processes used to open brokerage and advisory, or fee-based accounts.

Brokerage account opening processes typically have shown greater efficiency compared with fee-based (e.g., 529 plan, mutual fund, and variable annuity) account opening.

That is starting to change due to new rules by Financial Industry Regulatory Authority (Finra). The rules were approved last year and took effect in July 2012.

Finra Rule 2090 (Know Your Customer) requires firms to use reasonable diligence in regard to the opening of every account, to ascertain he essential facts concerning every customer.

Finra Rule 2111 (Suitability) requires that a firm have a reasonable basis to believe that a recommended transaction or investment strategy inv0lving a security is suitable for the customer.

Together, the Finra rules have required an overhaul of procedures, modifications to automated systems, and education of employees regarding compliance.

“Historically, fee-based or advisory accounts required the advisor to capture a very different level of information related to the clients ‘suitability,’” said Sheri Facinelli, executive vice president at Quadron Data Solutions, a provider of brokerage automation technology. “Recent regulatory changes, such as Finra 2090 and 2111 and proposed future changes, continue to homogenize these requirements – moving the account opening requirements to a higher degree of standardization between different service types, for example, fee versus transaction-based business.”

The account opening process has become more important than ever for both self-clearing firms (large firms that maintain securities clearing operations in-house) and “fully-disclosed” brokers (small and midsize brokerage firms that outsource clearing operations to a third-party such as National Financial or Pershing).

Fully-disclosed brokers have depended heavily on the systems provided by their clearing firm, which limits the account opening solution to supporting only brokerage/clearing accounts.

“Consequently, fully-disclosed firms build multiple workflows for alternative custodians, such as direct with fund companies and insurance providers,” said Facinelli. “The self-clearing firms have made some efforts and unifying the account opening processes, creating a service differential between the two types of broker dealers.”

The buy side is also having to adapt to the new regulatory climate.

“The next five years will be all about the investor, client service and transparency,” said Ronan Brennan, chief technology officer at MoneyMate, a provider of data management technology to global asset managers and fund administrators. “Investors have become much more discerning and are demanding deeper information on their investments how and when they want it.”

One of the biggest challenges during the account opening process is providing advisors with a unified experience across platforms and providers, with tools that allow the advisor to correctly capture all required data and complete all paperwork in a single pass, and in a timely fashion.

“Advisors indicate that when they have to go back to clients multiple times to complete paperwork or the process takes multiple days, they lose client confidence before the client has even on-boarded,” Facinelli said.

Quadron Data Solutions provides a platform-agnostic account opening solution, AccountQ, which provides an advisor with a common workflow across multiple custodians and product sponsors.

The unified account opening process is enhanced through integration with products and services that provide advisors with greater efficiency and interaction between multiple services , such as pre-populating account information, e-signature allowing clients to complete paperwork electronically and integration with the broker dealers’ imaging and workflow systems, according to Quadron Data Solutions.

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