Broker-Dealers: 
Why They Ask for Personal Information

Your broker is most likely asking these questions to comply with the suitability rules imposed by securities industry self-regulatory organizations (SROs). When your broker recommends that you buy or sell a particular security, your broker must have a reasonable basis for believing that the recommendation is suitable for you. In making this assessment, your broker must consider your risk tolerance, other security holdings, financial situation (income and net worth), financial needs, and investment objectives. 

New York Stock Exchange Rule 405 - officially entitled "Diligence as to Accounts" and commonly referred to as the "know your customer" rule - requires every member of the NYSE to "[u]se due diligence to learn the essential facts relative to every customer. . . ." NASD Rule 2310 similarly requires its member firms to "make reasonable efforts to obtain information concerning: (1) the customer's financial status; (2) the customer's tax status; (3) the customer's investment objectives; and (4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer." Please note that the SEC does not maintain or control the NASD's website.

In addition to SRO suitability rules, your broker must also comply with the USA Patriot Act of 2001. On April 30, 2003, the Department of Treasury, through the Financial Crimes Enforcement Network, and the Securities and Exchange Commission jointly adopted a final rule (effective June 9, 2003) to implement Section 326 of the USA Patriot Act. Among other things, Section 326 requires brokers to implement reasonable procedures to verify the identity of any person seeking to open an account, to the extent reasonable and practicable; to maintain records of the information used to verify the person's identity; and to determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to broker/dealers by any government agency. Customers may be asked to update information requested in the firm's opening account agreement to ensure compliance with the Patriot Act.

http://www.sec.gov/answers/bd-persinfo.htm