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Account opening process

Lesson in Course: Investing basics (beginner, 3min)

We're ready to open a brokerage account. What do we need?

Eureka!

What it's about: Opening an account is quick and easy. We just have to verify our identity and connect a bank account.

Why it's important: The process is important for security and anti-money laundering regulations.

Key takeaway: It can still take a couple of days for our account to be approved for making investments so it's better to open one sooner rather than later.

Overall, opening an account takes about 15min or less online. Most brokerages require us to be at least 18 years old; however, some brokers now allow teenage investors to open an account before they are 18 if their parents already have a brokerage account with them.

Verify identity

Collecting this information is necessary for brokerages to comply with FINRA regulations, and we should be ready to provide it.

Our identity is tracked to prevent criminal activities
What is Know your customer ?

A series of questions and the identification processes that brokerages ask every new customer.

The required information includes:

  1. Social Security Number (often a picture of your Social Security Card is required)
  2. Drivers license / State Id/ Passport
  3. Bank account statement or other proof of fund and address
  4. Proof of Permanent Residency Card (if you are not a US citizen)
  5. Employment status including annual income and net worth and if you work for another brokerage
  6. Are you or a family member a senior executive, or 10% shareholder at a public company
  7. Are you or a family member a current or formerly politically exposed person or public official
 

Connect a bank account

Many modern brokerages will use software to make it easy and convenient to connect directly to our bank accounts.

All brokerages will allow us to transfer money from our banks

Regulations place limits on how quickly the money deposited from a bank account into a brokerage account can then be withdrawn money into a different bank account. This is to prevent criminals from laundering money by moving cash through brokerage accounts. 

What is Anti-money laundering ?

Restrictions placed on financial institutions to do their part in preventing money laundering and moving money around for criminals.

Certain brokerages have their own restrictions. 

Criminals try to use assets to clean dirty money

For example, some might require us to keep newly deposited cash in the brokerage account for 60 days before we can transfer it into a different bank account. Keep this in mind if we plan on funding a brokerage account with multiple bank accounts.

 

Minimal deposit amount

Certain brokerages require minimal deposit amounts. Most of the time, these amounts are small and many brokerages don't require any money to open an account. However, there are some firms that cater to wealthy folks that require minimum investments of over $100K!

Actionable ideas

To be compliant with KYC and AML requirements, brokerages will need a few days to approve your account. This means you won't be able to invest on the same day you decide to open an account. Get a head start by opening an account sooner rather than later.

Supplementary materials

Here's a quick video about how to open a brokerage account
https://www.youtube.com/watch?v=ka2TZM94EtM&ab_channel=TheMotleyFool
FINRA Regulations

Here is an article that describes some rules that govern the activities, conduct, and obligations to us as customers:

https://www.finra.org/registration-exams-ce/manage-your-career/obligations-your-customers 

https://www.finra.org/registration-exams-ce/manage-your-career/obligations-your-customers

Glossary

What is Know your customer ?

A series of questions and the identification processes that brokerages ask every new customer.

What is Anti-money laundering ?

Restrictions placed on financial institutions to do their part in preventing money laundering and moving money around for criminals.