Chapter 8: Customer Accounts (Quiz #1)

Which of the following is CORRECT about JTWROS (Joint Tenants with Rights of Survivorship)? [A] Securities transactions may be placed by any individual listed on the account. [B] The account must be limited to two individuals only. [C] These accounts are generally taxed at a higher rate than individual accounts. [D] If one of the account owners dies, the surviving member(s) of the account will receive all of the assets of the account unless the deceased individual's will states otherwise.

[A] EXPLANATION: • "Joint Tenancy with a Right of Survivorship" registration means that upon the death of any one of the tenants (there may be more than two), his or her interest passes automatically to the surviving tenants. • The transfer avoids probate. • Although it is frequently used by married couples, it is not limited to married couples or family members. • This form of ownership overrides provisions in the decedent's will. • As with any joint account, any individual member of the account has the right to place trades in the account.

Which of the following is a benefit of an UGMA account? [A] Lower tax potential on earnings [B] Tax deferral on contributions [C] Tax deductions of the donor [D] Elimination of tax liability

[A] EXPLANATION: • Since the minor may be in a lower tax bracket, there is a potential for lower tax on earnings.

A market order to sell at the close is placed with a registered representative. The trade is executed, and a confirmation indicating an execution price of 14 is sent to the customer. However, the trade actually occurred at 13. What price does the customer receive? [A] 13 [B] 14 [C] 13.50 [D] The member firm must cancel the trade

[A] EXPLANATION: • The market order was actually executed at 13, so the customer must accept 13 despite the price error on the confirmation. • There is no obligation on the member to cancel the trade

A FINRA member is holding an account in the the name of a corporation. In order for the corporation to transfer ownership of its shares, it must first have the signatures of: [A] all officers of the corporation. [B] the persons authorized to act for the corporation plus documentation of that authorization. [C] any officer of the corporation. [D] at least two officers of the corporation.

[B] EXPLANATION: • Only the person authorized by the corporation to act on its behalf must sign to transfer the shares. • When the broker-dealer opened the account, it would have received notification of who the authorized person would be.

Regarding UGMA and UTMA accounts, which of the following is false? [A] The donor can be the custodian [B] The account can hold margined securities [C] The donor must be an adult [D] The gift is irrevocable

[B] EXPLANATION: • The question asks which of the statements is false. Margin is not permitted in a custodial account. • Neither UGMA nor UTMA accounts can hold street-named securities, and margin account securities are in street name ( because of rehypothecation)

One of your clients recently contacted you with some unfortunate news. She was diagnosed with inoperable cancer and is expected to live less than one year. the client originally invested over $250,000 into the account over 15 years ago. She has done very well in the market since. the client plans to leave her entire estate to her cousin, who is currently 24 years of age and finishing college. which of the following is the best advice you can give to this client at this time? [A] You should advise the client to open a joint account with her cousin so that the funds may be transferred to that account and probate upon her death may be avoided. [B] You should advise the client to liquidate all holdings in the account and invest them entirely in treasury securities since these are highly liquid investments. [C] You should advise the client to contact an attorney who specializes in estates and tax issues related to estates. [D] You Should advise the client to have the cousin open an account and transfer all the assets of the account from her account to the cousins account.

[C]

A registered representative comes to the operations professional regarding an issue with an account. Proper notification of death has been given to the RR, but the RR currently sees that the client has several open orders to buy and sell that remain outstanding at this time. The OP should tell the RR to [A] Cancel all open orders to buy, but allow the open orders to sell to remain. [B] Cancel all open orders to sell, but allow the open orders to buy to remain. [C] Cancel all open orders in the account, regardless of whether the orders are to buy or sell. [D] Take no action related to the account as the firm must receive further instructions from the client's estate prior to cancelling orders or liquidating positions.

[C] EXPLANATION: • A firm's first course of action upon receiving proper notification of death about a customer should always be to cancel all open orders. •Following that, the firm should await instructions from the deceased client's estate.

Which of the following individuals would you be exempt from registration as an investment advisor if the investment recommendations they offer are solely incidental to their profession? [A] An agent who sells variable life policies only [B] Financial Planner [C] Accountants [D] Portfolio Managers

[C] EXPLANATION: • Lawyers, Accountants, Teachers, and Engineers (LATE) who provide investment advice that is solely incidental to the practice of their profession would be exempt form having to register as an investment advisor.

When a registered representative is opening a new account for a client, all of the following information must be obtained except? [A] The customer's name, residence, and business address [B] The customer's occupation and employer, as well as telephone number [C] The customer's educational background and any advanced degrees [D] The customer's current investments, financial situation, and investment objectives

[C] EXPLANATION: • When a new account is opened for a customer, all of the choices offered are required except that the firm does not need to know the customer's educational background or any advanced degrees.

Jake handles an account for an individual who likes to bungee jump and skydive. the individual considers himself to be a person who enjoys taking risks. Jake feel s that the customer has a relatively low level of risk tolerance in relation to investing after looking over the individual's financial situation, time horizon for investment goals, and experience with investing. Which of the following is TRUE of this situation? [A] Because of the clients activities outside of investing, Jake should mark the account as having high risk tolerance. [B] Because the client says that they enjoy taking risks, Jake should mark the account as having high risk tolerance. [C] Because Jake has determined the client has a low risk tolerance when it comes to investments, the client's opinions related to risk tolerance outside of investments are irrelevant. [D] Because Jake has determined the client has a relatively low risk tolerance in light of the circumstances, Jake should educate the client as to how risk tolerance is determined and encourage the client to invest according to their situation and objectives.

[D] EXPALNATION: • Jake should educate the client as to how determinations of risk tolerance are made. Though the client may feel as though they are willing to take a high level of risk, and may do so outside of investing, this doesn't mean that Jake should automatically mark the account as having high risk tolerance. Jake must look into the client's financial situation, their time horizon related to various investments, and their experience level in investing.