new accounts/enrollments

[Guest SPOT]

I have a situation in which the investment advisor is telling the plan sponsor that he need personal financial information such as net worth, personal investments, etc. in order to set up accounts at American Funds for new enrollees. Understandably, the new enrollees no longer want to participate. Is this a common practice?

[R. Butler]

No. We actually have plans that use American Funds & they have not asked for that type of information.

[MGB]

The words coming to my mind concerning this "investment advisor" are not printable in a family forum.

(I assume these are 401(k) accounts, given the forum this is listed in, and not IRA or other personal accounts that are being set up.)

[Guest SPOT]

Yes, they are 401(k) accounts. I really am at a loss over this one.

[Demosthenes]

The advisor may be attempting to collect personal information in order to build a prospects list for future direct sales outside of the 401k plan. Nothing wrong with that if you choose to volunteer the information. Making it a condition of participation in the plan/fund opens up a host of other issues.

On the flip side of the discussion, if his response is that the info is required for the determination of "suitability" of the investment, that may be applicable if he is making specific recommendations on investments to the participants.

If he's not making recommendations, have him re-read Rule 2310 of the NASD manual and tell him to back off. If he doesn't, threaten to place the business via another advisor or complain to American Funds directly.

Tough to make a call until we know why he "needs" the info

[Brian Gallagher]

What is the exact nature of these accounts?

We have plans that have Self-Directed Brokerage (SDB) accounts that can coincide with their regular, "core" accounts. In order to establish those SDB accounts, we need to know the suitability information.

However, for "core" accounts we don't need that.

To me, that would create a nightmare. Every trade would either have to go through the agent and either a suitability review would have to be done on those trades, or the particiapnt would have to explicitly state that the trade was not neccessarily suggested or reviewd by the agent. Yuck!

[Guest SPOT]

These are individual accounts through American Funds and the participants are only able to invest in about 10 mutual funds that the ER and Investment Advisor have selected.

Thanks for the comments!

[Guest Candybar]

I've had the same situation with American Funds accounts. American Funds did not request the information; however, the investment advisor told me that the information is now required as part of the "Patriot Act." I received the same response from the participants. In the end, I wasn't able to obtain the information from the participants and told the advisor that if he really needed it then he could contact the participants and deal with their angry responses. I don't think he followed up.

[Demosthenes]

Under the Patriot Act, Broker-dealers are not required to look through a trust or omnibus account. However, if the participants are opening individual brokerage accounts, then they may be the "customer" and must provide the Patriot Act information SEC Final Rule Customer Identification Programs For Broker-Dealers (a)(4)(i)(A).

However, that information is limited to verifying identity, it does not request personal holdings, net worth etc.

Sounds like you are setting up an FBO account for each participant at American. To American, they may look like individual brokerage accounts triggering the request for suitability information.

[david rigby]

Have you tried saying "NO"?