Ch. 1 Building an Investor Profile

A customer's investment profile would include all of the following information, EXCEPT the: - Amount of taxes paid by the customer - Investment experience of the customer - Risk tolerance of the customer - Other investments held by the customer

Amount of taxes paid by the customer. The tax status is a component of an investor's investment profile, but not the amount of taxes paid.

When determining whether a recommended transaction is suitable, which of the following factors is LEAST important? - Customer's Age - Customer's Liquidity Needs - Customer's Level of Education - Customer's Tax Status

Customer's Level of Education The educational level of the customer or what type of degree she has would be the least important factor listed.

Which of the following factors is the MOST important to consider when analyzing the investment portfolio of a client who has retirement as her primary investment objective? - Age - Net Worth - Education Level - Previous Investment History

Age When analyzing a client's existing portfolio to determine how it affects recommendations you might make, it is important to consider a client's investment objectives and the length of time available to try to meet those objectives.

Under Regulation BI, which of the following forms is required for a broker-dealer to disclose the relationship it maintains with its clients? - Form U4 - Form CRS - Form 3 - S-1

Form CRS (Customer Relationship Summary) It is required under Regulation BI and is used to provide retail investors with information about the nature of their relationship with their financial professional.

How is an individual's net worth calculated?

Net Worth = Assets - Liabilities An individual's net worth represents his total assets minus his total liabilities.

A broker-dealer wants to create a sales contest for its registered representatives (RRs) based on the sale of a proprietary variable annuity that the firm is launching. For the winner of the contest, the firm will donate a specified amount of money to the RR's charity of choice. Is this type of sales contest permitted?

No, since the contest is based on the sale of a specific product. Sales contests, bonuses, and non-cash compensation cannot be based on the sale of specific products or specific types of securities.

A investor has been writing covered calls and now wants to begin writing uncovered calls. If the new approach is permitted, the investor's registered representative should update the investor's profile to show the objective to be: - Capital Appreciation - Speculation - Balanced - Growth

Speculation Writing uncovered calls is considered one of the most speculative investment strategies since the investor is assuming potentially unlimited risk.

Which of the following is MOST important when opening an account and making a recommendation to a customer? - Suitable Recommendation - Customer's Best Interest Recommendation - Principal Approved Recommendation - No Recommendation for New Accts (Prior to 3 Months Elapsing)

That the recommendation is in the customer's best interest. - Suitability is the primary factor when making a recommendation. - Under Regulation Best Interests (Reg BI), the most important factor is that the recommendation is in the customer's best interest.

A customer wants to purchase a speculative security in her account based on a friend's recommendation. The customer's investment objectives are growth and income, but not speculation. What's the BEST course of action for the customer's RR to take? - Refuse to accept or execute the customer's order. - Mark the order ticket "unsolicited," but have the order approved by a principal prior to execution. - Mark the order ticket "unsolicited" and execute the order immediately. - Inform the customer that this trade is not suitable; however, if the customer persists, mark the order ticket "unsolicited" and execute the transaction.

The best course of action is to first inform the customer that this trade is not suitable. If the customer still wants to purchase the security, the RR should mark the order ticket "unsolicited" and execute the transaction. The RR is should not refuse to accept the order.

A broker-dealer's suitability obligation is:

To make sure the recommended security fits the customer investment objectives. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile.

When a registered representative makes a recommendation to a customer involving a leveraged exchange-traded fund (ETF), she will consider which of the following factors as the MOST important? - Whether the security was registered with the SEC under the Securities Act of 1933 - Whether the security is a good investment for a specific customer - Whether the security may be able to be sold quickly - Whether the security is expected to have a return in excess of the overall market

Whether the security is a good investment for a specific customer. Although the other factors may influence recommendations, ensuring that a recommendation is suitable for a specific customer is the most important factor.