Opening a brokerage account? Prepare to bare all
— -- Q: When I signed up for an online brokerage account, many of the questions seemed pretty personal. Are these required?
A: The brokerage industry is highly regulated. The Securities and Exchange Commission and state regulators want to know who is participating in public markets and how to reach them.
Brokerages, company officers and directors and yes, individual investors like you are required to disclose some personal information for a variety of reasons. The fact you must provide a Social Security number probably isn't that surprising. That's one way the Internal Revenue Service uses to make sure you're properly reporting dividends and other investment proceeds on your tax returns.
Most brokers will also ask about your employer, your income, your net worth and citizenship status. Most of this information is collected so the government can find you in case it's determined you did something you shouldn't have.
That's why, if you've noticed, that you're asked if you're an officer or director at a publicly traded company. If so, the government will closely monitor your transactions in your company's stock for potential insider trading.
The questions about your income are important because the broker, who may extend you credit, wants to check your finances. Also, some investments, such as hedge funds or options, may not be available to you if you don't meet certain standards.
Some questions are left over from the old days, when few investors were self-directed as they are now and got most of their investment information from brokers. The questions about your income, for instance, can help regulators determine if you were sold inappropriate investments by a broker.
As you can see, having a regulated stock market is a two-way street. On one hand, it's good that regulators keep close tabs on brokerage firms and brokers. But you must also provide more information about yourself than you might want.
Matt Krantz is a financial markets reporter at USA TODAY. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.
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