Opening an Account with a Stock Broker

If you have decided to invest in stock, bonds or other securities, you will probably want to open an account with a brokerage firm.

Opening an account with a broker-dealer is similar to opening a bank account or a credit account with a department store. To start, an account executive will be assigned to handle your account. Your account executive may arrange to open your account by telephone, by mail or through a visit to the broker's office. The new account application requires, among other things, your name, address, age, social security number, business address, employer, occupation, bank and/or credit references, and, in most instances, some information about your financial resources and income. You have to make certain assurances to the broker-dealer of your ability to pay for any securities and your account executive will ask about your investment objectives and how much risk you want to take or other financial limits you may have.

It is important to remember that if you feel any of the questions are too personal or confidential and do not wish to supply that information to the broker, the brokerage firm does not have to accept your account and may refuse to open an account for you. A broker is obligated to obtain essential facts relative to each customer in order to comply with rules that are designed for a customer's own protection. In addition, the firm must know whether it is dealing with the spouse of an employee of another firm, or with any other person for whom securities transactions might be subject to any other restrictions or limitations.

There are different types of accounts, generally falling into the following categories:

• CASH: You must pay for all securities purchased at the time you purchase them.
   
• MARGIN: You may purchase securities on credit. Margin accounts are also required for short sales and many kinds of option transactions.
   
• Accounts for individuals, for joint ownership (the exact form may depend upon the state residence), for partnership or corporations. Accounts may also be for various kinds of fiduciary relationships, including trustees, administrators, executors and custodians.

When you open your account, you may also be asked to sign one or more agreements, depending upon which type of account you are opening. Be sure to read these agreements carefully. They may contain important information as to what the firm would do in certain situations. For example, most agreements provide for arbitration of any future disputes concerning your account. Another example is a margin agreement, if you are opening a margin account, that would inform you of what steps the broker would take if your account does not meet minimum margin requirements at any given point.

After your account has been approved, expect to receive from the broker a confirmation for every trade that occurs in your account. This confirms the transaction in writing and also tells you when to pay for securities purchased, or when to deliver any shares you may have sold. You will also receive, at least quarterly, a statement of your account summarizing all activity for that period.

If you have any questions concerning opening an account with a broker-dealer you may write to the Office of Consumer Affairs, Securities and Exchange Commission, Washington, DC 20549.