What is a client account?

Client Account: Definition and Importance

A client account is a bank or building society account operated by a professional person (e.g., a solicitor, stockbroker, agent, etc.) on behalf of a client (Oxford Reference, n.d.). Client accounts are legally required for any company handling investments on a client’s behalf (Law Insider, n.d.). This legal requirement serves several crucial purposes:

Protection of Client Funds

Client accounts are designed to safeguard the client’s money in the event of the company’s insolvency (Oxford Reference, n.d.). By keeping client funds separate from the company’s business transactions, the risk of dishonest appropriation is minimized (Oxford Reference, n.d.).

Prevention of Dishonest Appropriation

The existence of separate client accounts makes it more difficult for companies to engage in dishonest appropriation of client funds (Oxford Reference, n.d.). This protection is essential in maintaining trust and confidence in the financial industry.

Account Information

Each client account should contain specific information, as outlined in FINRA Rule 4512 (FINRA, n.d.):

• Customer’s name and residence
• Whether the customer is of legal age
• Name(s) of the associated person(s) responsible for the account
• Signature of the partner, officer, or manager denoting that the account has been accepted in accordance with the member’s policies and procedures
• If the customer is a corporation, partnership, or other legal entity, the names of any persons authorized to transact business on behalf of the entity
• Contact information for a trusted contact person age 18 or older who may be contacted about the customer’s account

Additional Information

Depending on the type of account, additional information may be required, such as (FINRA, n.d.):

• Customer’s tax identification or Social Security number
• Occupation of customer and name and address of employer
• Whether the customer is an associated person of another member

Discretionary Accounts

For discretionary accounts, additional recordkeeping requirements apply, including maintaining a record of authorized associated persons and their signatures (FINRA, n.d.). This ensures that the client’s instructions are followed and that the account is managed in accordance with the client’s wishes.

Conclusion

Client accounts play a vital role in protecting client funds and preventing dishonest appropriation. By maintaining separate accounts and adhering to regulatory requirements, companies can ensure the integrity of their financial dealings and maintain the trust of their clients.

References

FINRA. (n.d.). 4512. Customer Account Information. Retrieved from https://www.finra.org/rules-guidance/rulebooks/finra-rules/4512

Law Insider. (n.d.). Designated Client Account. Retrieved from https://www.lawinsider.com/dictionary/designated-client-account

Oxford Reference. (n.d.). Client account. Retrieved from https://www.oxfordreference.com/display/10.1093/oi/authority.20110803095617732

FAQs

What is a client account?

A client account is a bank or building society account operated by a professional person (e.g., a solicitor, stockbroker, agent, etc.) on behalf of a client.

Why are client accounts important?

Client accounts are important because they protect the client’s money in case the company becomes insolvent and make it more difficult for companies to make dishonest appropriations of the client’s funds.

What information is typically included in a client account?

Each client account should contain specific information, such as the customer’s name, residence, associated person(s) responsible for the account, and contact information for a trusted contact person.

What are the additional requirements for discretionary accounts?

For discretionary accounts, additional recordkeeping requirements apply, including maintaining a record of authorized associated persons and their signatures.

Who is required to have client accounts?

Companies that handle investments on behalf of clients are legally required to have client accounts.

What are the benefits of having a client account?

Client accounts offer several benefits, including protection of client funds, prevention of dishonest appropriation, and clear record-keeping.

What are the risks of not having a client account?

Companies that do not have client accounts may face legal consequences and damage to their reputation.

How can I open a client account?

To open a client account, you will need to contact a professional person who offers this service, such as a solicitor, stockbroker, or agent.