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I'm in the process of opening an account with TD Ameritrade, and they've asked for proof of employment that includes my current salary.

Why would they need to know my current salary? Especially since all the employment contracts I've seen have had clauses that say the salary and all remuneration is confidential.

Related: Why does an online stock broker need to know information about my place of employment? but the broker is going further by asking not just for place of enrolment but also for current salary.

Allure
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5 Answers5

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Anti Money Laundering (AML)

In our current political climate, there is a huge amount of pressure to enact strong AML controls to prevent tax evasion, funding of terrorists and circumventing of economic sanctions.

The first line of defense most financial institutes have against aiding such activities is called Know Your Client.

Know Your Client (KYC)

Basic information about each client is gathered at the client onboarding stage, and is updated at regular intervals to ensure adequate checks are applied to your account.

Financial institutes will need a basic understanding of your finances, and your family/political/etc. connections.

Banks need to know for example, if they should investigate further when $100,000 USD is deposited into a trading account for instance. If the account was held by Warren Buffet, for example, they would conclude that it is chump change and probably completely normal.

However, if a seriously in debt student deposited a "phat stack of green" into his trading account. An investigation would be launched into the source of these funds.

During the investigation, a bank may find that the money comes from:

  • Local school teacher turned meth kingpin
  • Kim Jung Un
  • Osama bin Laden
  • Untaxed income (such as your freelance assassin gig)
  • A job you can work from home, where you forward checks to different addresses

Financial Regulators

What you may not know is that a financial institute can very often fall under the regulation of multiple national financial regulators, simply by:

  • Having a presence in that country
  • Hiring a national from that country
  • Doing business with someone with ties to that country
  • Existing on the same planet as that country

source: My Annual AML/KYC training

CGCampbell
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Aron
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Stock brokerages are required by law, in the USA at least, to collect employer information as well as income and other personal information. You will find that all of them do this because the penalties for them are significant for non-compliance.

This is to comply with various laws that demand that they report potential conflicts of interest and tax reporting. They are also required to ensure that your trading habits are in line with your income level.

jwh20
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"Especially since all the employment contracts I've seen have had clauses that say the salary and all remuneration is confidential."

Let's assume that you have signed an agreement to not tell anybody what your income is. Taken to the extreme that would mean that you can't apply for a car loan, or a mortgage, or a credit card. All these things require you to tell them your income so that they can determine if you can afford it. Also your bank and the IRS know. Lenders sometimes require you to submit copies of tax forms, or pay stubs.

So why does your broker need to know? If you are wanting to invest in complicated markets they need to know you can afford the amount you are risking. If you are purchasing investment advice they also need to understand your entire financial situation before suggesting specific investments.

Will
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mhoran_psprep
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A broken may ask you this because they want to know if you are a "Qualified" or "Accredited" investor, which includes an income test to verify. There are a number of investments that are only offered to accredited investors, for example unregistered securities (which may be riskier).

So they probably want to flag your account as to whether these options are available to you.

More Info on Accredited Investors

JohnFx
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The point about AML / KYC has already been covered by @Aron but I just wanted to jump in on this point:

Especially since all the employment contracts I've seen have had clauses that say the salary and all remuneration is confidential.

I suggest you re-read your employment contract.

You will find that most contracts (whether employment or otherwise) that have a confidentiality clause will be worded as follows:

"X, Y and Z is confidential except where disclosure is required by law or disclosure to professional advisors".

The wording might not all be in the same clause, it might be lower down the document, but it will be there.

Confidentially cannot over-rule the law or your right to seek professional advice (i.e. accountants, lawyers etc) . In the case of stockbrokers, KYC/AML is the law.

Little Code
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