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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.

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    Are you opening a margin account?
    – user662852
    Commented Oct 21, 2021 at 4:14
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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." - I don't know your jurisdiction, but even in the notoriously labor-hostile United States, this is illegal.
    – Kevin
    Commented Oct 21, 2021 at 4:48
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    @Kevin It could simply be misreading the contract. That information is confidential from the perspective of the company to the employee. HR can't tell anyone else what OP makes, but OP can tell anyone freely
    – TCooper
    Commented Oct 21, 2021 at 22:26
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    @Allure: In the US, telling your colleagues about your salary or other compensation is explicitly protected as a form of labor organizing. If it "causes resentment," then that's management's problem. See the NLRB's discussion of concerted activity. Your local jurisdiction might differ from the US, of course.
    – Kevin
    Commented Oct 22, 2021 at 2:26
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    Do brokerages based in your home jurisdiction ask this question? Maybe you are simply unable to both comply with your contract and use the services of a US based brokerage
    – user662852
    Commented Oct 22, 2021 at 3:21

5 Answers 5

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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

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    Fun fact: current estimates show that only 0.1% of fraudulent transactions are caught by KYC processes. Real criminals know numerous ways around these laws. Its the normal people who suffer the most from such bureaucracy. Adding the comment as your answer seems to imply that these processes are good because they catch criminals - they kind of don't.
    – JonathanReez
    Commented Oct 22, 2021 at 18:49
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    @JonathanReez Doesn't surprise me at all--such measures are going to be best at catching tax cheats, not bigger fish.
    – Loren Pechtel
    Commented Oct 23, 2021 at 1:57
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    @JonathanReez The purpose of the regulations is preventing crime by making it harder and more expensive. Catching a criminal is always a failure, because the crime has already happened by then.
    – Jouni
    Commented Oct 23, 2021 at 17:14
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    @Jouni there’s a high cost to society from these measures, as financial transactions become more expensive and people have to waste time on paperwork. The question is if preventing some crime is worth this added friction. The regulators are never forced to produce a cost benefit analysis to justify what they’re doing, unfortunately.
    – JonathanReez
    Commented Oct 23, 2021 at 18:36
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    @JonathanReez As others have noted, KYC doesn't catch fraudulent transactions, but rather prevents them locally. This will likely force criminals to other, less robust institutions with weak AML/KYC processes. Why burgle a neighbourhood watch house, when there are houses that are left unlocked? Take HSBC of 2012. Regulators found that various cartels are funneling their money laundering services through the HSBC banking network. In this case, it wasn't the KYC process at HSBC that caught the fraudulent transactions, but rather the audit that occured after it was found that HSBC has crap AML.
    – Aron
    Commented Oct 24, 2021 at 16:49
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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.

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  • I guess I should have said: "income and/or net worth". But I think you meant "earned income".
    – jwh20
    Commented Oct 21, 2021 at 18:44
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    @jwh20 "Ensure that your trading habits are in line with your income level" -- what does that mean? Are people with different salaries required by law to trade differently?
    – ManRow
    Commented Oct 22, 2021 at 5:58
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    @ManRow It means they must monitor and flag any unexpected cash flows. We in the industry called this Anti Money Laundering or AML for short. The information collected is Know Your Client (KYC). Without proper KYC, we cannot affect AML controls. If for instance, you say you have $10k in savings and $30k income, we would flag your account if you make a $10mil purchase order on AMC.
    – Aron
    Commented Oct 22, 2021 at 7:13
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    @Aron maybe write that as an answer, it feels like it cuts closest to the heart of the question.
    – Allure
    Commented Oct 22, 2021 at 11:00
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    Is there a penalty for lying to the stock broker by saying you're unemployed, assuming you don't mind dealing with a government audit where you'll tell the truth?
    – JonathanReez
    Commented Oct 22, 2021 at 18:51
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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.

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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

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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.

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    I re-read my employment contract and the clause you mention is not there. It should be though. I'll suggest it to HR.
    – Allure
    Commented Oct 25, 2021 at 6:16
  • HR says it's understood that the statutory law is above the employment contract, and financial advisors are statutory, so /shrug.
    – Allure
    Commented Oct 25, 2021 at 6:58

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