FINRA Series 6

Retail Communication

"any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. *Preapproval of a principal is required (prior to use).

net worth

(assets - liabilities = net worth)

Section 457 Plans

(nonqualified retirement plans) set up by state and local governments and tax-exempt employers for their employees and independent contractors that work for those entities. They function as deferred compensation plans in which earnings grow tax deferred and all withdrawals are taxed at the time of distribution. Employees may defer up to 100% of their compensation, up to an indexed contribution limit.

Money Market Instruments

-BA -T-bills -Commercial or Prime Paper -Negotiable (Jumbo) CDs

Types of Unsecured Bonds

-Debentures -Subordinated Debentures -Guaranteed bonds -Income bonds -Zero coupon bonds

Four types of industries

-Defensive -Cyclical -Countercyclical -Growth

business cycle phases

-Expansion -Peak -Contraction -Trough

U.S. GOVERNMENT AGENCIES SECURITIES

-Government National Mortgage Association (GNMA), -the Federal Home Loan Mortgage Corporation -the Federal National Mortgage Association

How AIR affects monthly payments...

-If separate account performance is greater than the AIR, next month's payment is more than this month's. -If separate account performance is equal to the AIR, next month's payment stays the same as this month's. -If separate account performance is less than the AIR, next month's payment is less than this month's.

mutual fund categories

-Stock funds invest in stocks. -Bond funds invest in bonds. -Balanced funds invest in a combination of stocks and bonds. -Money market funds invest in very short-term investments and are sometimes described as cash equivalents.

investments that are appropriate for IRAs

-Stocks and bonds -Annuities -Mutual funds (other than municipal bond funds) -Unit investment trusts (UITs) -Government securities -U.S. government-issued gold and silver coins

SUITABILITY OF VARIABLE LIFE INSURANCE

-There must be a life insurance need. -The applicant must be comfortable with the separate account and the fact that the cash value is not guaranteed. -The applicant must understand the variable death benefit feature. -A prospectus must be delivered prior to or at the time of solicitation

minimum requirements before it may register as an investment company with the SEC.

-net assets of at least $100,000, and -a clearly defined investment objective.

types of speculative investments

-option contracts, -high-yield bonds, -unlisted or non-Nasdaq stocks or bonds, -sector funds, -precious metals, and -special situation funds

Liquid investments

-securities listed on an exchange, -unlisted Nasdaq securities, -mutual funds

A company must register with the SEC as an investment company if...

-the company is in the business of investing in, reinvesting in, owning, holding, or trading securities; or -40% or more of the company's assets are invested in securities (government securities and securities of majority-owned subsidiaries are not used in calculating the 40% requirement).

Illiquid investments

-unlisted, non-Nasdaq stocks or bonds; -annuities when initially purchased and/or when the annuitant is under age 591⁄2; -real estate; and -hedge funds.

Types of Secured Bonds

1. Mortgage bonds 2. Collateral trust Bonds 3. Equipment trust certificates

What is the maximum sales charge on fixed-premium VL contract?

9%

municipal bond

A bond issued by a form of government other than the federal government or agency of the federal government

Keogh Plan

A federally-approved, tax-deferred savings program for self-employed people, allowing them to set money aside for their retirement.

voluntary accumulation plan

A mutual fund account into which the investor commits to depositing amounts on a regular basis in addition to the initial sum invested.

Stock Funds

A mutual fund that uses stock to meet its stated objectives can generally be referred to as a stock fund. Common stock is normally found in the portfolio of any mutual fund that has growth as a primary or secondary objective. Equity funds have historically outpaced inflation over most 10-year time horizons.

required beginning date

A participant must begin to receive distributions from her qualified retirement plan by April 1 of the later of the following years: -The first year after the calendar year in which she reaches age 701⁄2 -The first year after the calendar year in which she retires from employment with the employer maintaining the plan **if you are still working for that employer and are over 701⁄2, contributions to the corporate plan can still be made and minimum distributions are not required until after you retire**

Conduit IRA

A separate IRA established with a rollover from an eligible retirement plan.

Regulatory Risk

A sudden change in the regulatory climate can have a dramatic effect on the performance of a business and entire business sectors

Treasury Inflation Protection Securities (TIPS)

A type of Treasury issue, known as TIPS, helps protect investors against purchasing power risk. They are issued with a fixed interest rate, but the principal amount is adjusted semiannually by an amount equal to the change in the Consumer Price Index (CPI), the standard measurement of inflation

Fixed Annuities

A type of annuity that provides a guaranteed fixed benefit amount, payable for the life of the annuitant. -investors pay premiums to the insurance company that are, in turn, invested in the company's general account. The insurance company is then obligated to pay a guaranteed amount of payout (typically monthly) to the annuitant based on how much was paid in.

Zero-Bond Advantages

A zero-coupon bond requires a relatively small investment—perhaps $100 to $200 per bond—and matures at $1,000. They offer investors a way to speculate on interest rate moves.

Nondiscrimination (ERISA)

All eligible employees must be treated impartially through a uniformly applied formula.

Participation (ERISA)

All employees must be covered if they are 21 years or older and have performed one year of full-time service, which ERISA defines as working 1,000 hours or more in the previous year.

the Annuity monthly check is dependent on several factors:

Amount of money in the contract (more money equals a bigger check) ■ Age (the older one is, the larger the check will be) ■ Sex (females typically live longer than males; therefore, the check would be less for a female) ■ Payout option (reviewed in this segment) ■ Investment return versus AIR for variable annuities (see the following)

Growth Industries

An industry is considered in its growth phase if the industry is growing faster than the economy as a whole because of technological changes, new products, or changing consumer tastes. Technology associated with computers and bioengineering are considered growth industries. Because many growth companies retain nearly all of their earnings to finance their business expansion, growth stocks usually pay little or no dividends

variable annuity

Annuity that has a varying rate of return based on the mutual funds in which one has invested in the separate account. Meant to bring supplemental income to a household. -The premium payments for variable annuities are invested in the separate account of the insurer. The separate account comprises various subaccounts that behave like mutual funds (we just can't call them mutual funds). These accounts will have a variety of investment objectives to choose from, such as growth, income, and growth and income. -The returns in the separate account are not guaranteed and, therefore, a loss of principal is possible.

Blend/Core Funds

Are stock funds with a portfolio comprised of a number of different classes of stock. Such a fund might include both blue-chip stocks and high-risk/high-potential return growth stocks. Both growth and value management styles are used. The purpose is to allow investors to diversify their investment via management and securities in a single fund.

Specialized (Sector) Funds

Attempt to specialize in particular economic sectors or geographic areas. These funds must have a minimum of 25% of their assets invested in their specialties. **offer high appreciation potential but may also pose higher risks to the investor as a result of the concentration of investments. These funds are speculative in nature**

Beneficiaries (ERISA)

Beneficiaries must be named to receive an employee's benefits at death.

Equity Securities

Common and preferred stocks are two basic forms

Delivery vs. payment (DVP)

DVP securities are delivered to a bank or depository against payment. Normally used for institutional accounts, this is a cash-on-delivery (COD) settlement. The broker-dealer must verify the arrangement between the customer and the bank or depository, and the customer must notify the bank or depository of each purchase or sale. In addition, the customer designates whether the broker-dealer should hold or forward any cash balance.

SEP-IRA

Employees open IRAs and the employer makes contributions on their behalf

Exchanges Within a Family of Funds

Even though an exchange within a fund family incurs no sales charge, a sale took place and this is a taxable event that will result in either a capital gain or loss. This tax liability for a capital gain can be significant, and shareholders should be aware of this potential conversion cost.

Employee Retirement Income Security Act (ERISA)

Federal law established to prevent abuse and misuse of pension funds. ERISA guidelines apply to private-sector (corporate) retirement plans and certain union plans—NOT public plans like those for government workers.

FINRA Rule 2111

Firms and their associated persons "must have a reasonable basis to believe" that a recommended transaction or investment strategy involving securities is suitable for the customer.

Value funds

Focus on companies whose stocks are currently undervalued (earnings potential is not reflected in the stock price). These undervalued companies are expected to perform better than the reports indicate, thus providing an opportunity to profit. Value stocks typically have dividend yields higher than growth stocks. **Funds managed for value are considered more conservative than funds managed for growth**

Funding (ERISA)

Funds contributed to the plan must be segregated from other corporate assets. Plan trustees must administer and invest the assets prudently and in the best interest of all participants. IRS contribution limits must be observed.

Regulation S-P

Gramm Leach-Bliley Act. Firm must protect NIP (non public personal information)

CAPITAL GROWTH (CAPITAL APPRECIATION)

Growth refers to an increase in an investment's value over time. This can come from increases in the security's value. Growth-oriented investments are equity oriented.

Long-term capital gain

Holding period of more than one year and taxed as a capital gain, which is (generally) lower than ordinary income tax rates for an investor

Short-term capital gain

Holding period of one year or less and taxed at ordinary income tax rates for an investor.

1035 exchange

IRS allows tax-free transfer of cash values between 2 LIKE policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).

preliminary official statement (POS)

If an OS or POS is created the Municipal Securities Rulemaking Board (MSRB) requires that member firms to distribute the documents.

DEATH OF ANNUITANT

If the annuitant dies during the accumulation period, the death benefit takes effect. His beneficiary is guaranteed either the total value of the annuity or the total amount invested, whichever is greater, and is liable for income tax on any growth

As the Writer(Seller) of an option contract, there is one main objective

Income. The writer sells the contract, collects the premium, and hopes the contract expires so they can keep the premium

Other Assets

Intangible assets are nonphysical properties, such as formulas, brand names, contract rights, and trademarks. Goodwill, also an intangible asset, reflects the corporation's reputation and relationship with its clients.

Option income funds

Invest in securities on which call options can be sold (known as covered calls). They earn premium income from writing (selling) the options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.

Index funds

Invest in securities that mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The index may be broad, such as the S&P 500, or narrow, such as a transportation index. The fund's performance should closely track the underlying index performance

Foreign Stock Funds

Invest only in the securities of foreign countries (companies that have their principal business activities outside the United States). Long-term capital appreciation is their primary objective, although some funds also seek current income.

preservation of capital

Investment objective placing the emphasis on making sure the principal is not lost.

tax advantages

Investors often seek ways to reduce their taxes. Some products, like IRAs and annuities, allow interest to accumulate tax deferred (an investor pays no taxes until money is with- drawn from the account). Other products, like municipal bonds, offer tax-free interest income. Taxation questions can be tricky. Tax deferred simply means taxed later. Tax-free means the earnings are never taxed.

alpha

Is the extent to which an asset's or portfolios actual return exceeds or falls short of its expected returns. A positive alpha rather than a negative one is desirable.

call risk

Is the risk that a bond might be called by the issuer before maturity, and investors cannot reinvest their principal at the same or a higher rate of return. When interest rates are falling, bonds with higher coupon rates are most likely to be called.

Duration

It is a measure of the amount of time a bond will take to pay for itself. Each interest payment is taken to be part of a discounted cash flow, so there is more to the calculation than simply adding up the interest payments. For the Series 6, remember that duration is often used to assess the sensitivity of a bond in response to interest rate changes— **the longer the duration, the greater the sensitivity and, thus, the greater the interest rate risk in an environment of changing interest rates**

Option contracts provide purchasers with

Leverage: a relatively small cash outlay allows an investor to control an investment that would otherwise require a much larger sum. If a stock is currently $20 per share, 100 shares would cost $2,000, but a call on 100 shares might only cost $200 to $300.

Tax-Free (Tax-Exempt) Bond Funds

Municipal bond funds invest in municipal bonds or notes that produce income (dividends) exempt from federal income tax. These funds are appropriate for investors in a high marginal tax bracket seeking income.

computing the POP

NAV ($10) / 100% - sales charge percentage (4.8%) = POP ($10.50) or NAV ($10) + sales charge dollar amount ($0.50) = POP dollar amount ($10.50)

Profit-sharing plans

Plans that distribute a portion of an organization's profits to its employees. These plans do not require a fixed contribution formula and allow contributions to be skipped in years of low profits.

10-Q

Quarterly report

Capital Events

Receipts from selling something for more (or less) than was originally paid for it fall under the capital gains tax. If there was a gain, tax must be paid on it. If there was a loss, it can be used to offset gains and income.

How do reinvestments affect the Cost Basis Adjustment

Reinvestments will add to the investor's cost basis in the fund

computing the sales charge %

Sales charge dollar amount ($.50) / POP ($10.50) = sales charge percentage (4.8%) or POP - NAV / POP = sales charge %

Hold in street name

Securities are registered in the broker-dealer's name and held by the broker-dealer. Although the broker-dealer is the securities' nominal owner, the customer is the beneficial owner.

Transfer and ship

Securities are registered in the customer's name and shipped to them.

Transfer and hold in safekeeping

Securities are registered in the customer's name, and the broker-dealer holds them in safekeeping

Asset allocation funds

Split investments between stocks for growth, bonds for income, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance (or expected performance) of that group. These funds can also hold hard assets, such as precious metals like gold and silver, and real estate.

Mailing Instructions

Statements and confirmations may be sent to someone who holds POA for the customer if the customer requests it in writing and if duplicate confirmations are also sent to the customer.

(Equity) Income Funds

Stresses current income over growth. The fund's objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility company stocks, blue-chip stocks, and preferred stocks. These are managed for value, not growth.

Summary Prospectus—SEC Rule 498

Summary of statutory prospectus that the mutual fund can provide investor w/ app to purchase (or they can request statutory prospectus before purchase) Must include -Legend on cover page -Fund's name and class or classes -Exchange ticker symbol of the funds shares -If the fund is exchange traded (ETF), and what market the fund is traded on

Countercyclical industries

Tend to turn down as the economy heats up and rise when the economy turns down. -Gold mining and publicly owned pawn shops have historically been a countercyclical industry.

nonfinancial question

The answer does not show up on the customer's personal balance sheet or income statement. -Age -Marital status -Number and ages of dependents -Employment -Employment of family members -Current and future family educational needs -Current and future family health care needs -Risk tolerance -Attitude toward investing -Tax status

Life Annuity With Period Certain

The contract will specifically allow the choice of a period of 10 or 20 years, for instance. The length of the period certain is a choice that is made when a payout option is selected. The annuitant is guaranteed monthly income for life with this option, but if death occurs within the period certain, a named beneficiary receives payments for the remainder of the period.

Joint Life With Last Survivor Annuity

The joint life with last survivor option guarantees payments over two lives. It is often used for spouses. Because the insurance company is obligated to pay a check over two lifetimes, this check is considered to be smaller than a life with period certain option.

Communication (ERISA)

The plan document must be in writing, and employees must be given annual statements of account and updates of plan benefits.

Reinvestment of Distributions

The reinvested distributions purchase additional shares, which may earn dividends or gains distributions. The automatic reinvestment of distributions is similar to compounding interest.

liquidity risk

The risk that a client might not be able to sell an investment and receive its CMV quickly

timing risk

The risk to an investor of buying or selling at the wrong time and incurring losses or lower gains

bonus annuities

These benefits include enhancement of the buyer's premium, with the insurance company. contributing an additional 3%-5% to the premium payment. This comes with a cost, of course, in the form of higher fees and expenses and longer surrender periods than the typical 7 to 10 years of standard contracts.

Aggressive growth / Performance / Small-Cap Funds

These funds are willing to take greater risk to maximize capital appreciation. Some of these funds invest in newer companies with relatively small capitalization (less than $2 billion capitalization)

Currency Risk

This is the risk that changes in the rate of exchange will adversely affect an investment. As a rule of thumb, an investor who purchases an international fund (e.g., a foreign bond fund) will lose if the U.S. dollar appreciates against the foreign currency. The investor will profit if the U.S. dollar weakens (depreciates) against the foreign currency.

systematic risks

Those that affect all investments. cannot diversify away systematic risk!!!

nonsystematic risks.

Those that affect some and not others are

current income

Traditional debt securities such as corporate, government, municipal bond, and agency securities may provide steady interest income. In addition, many equity securities are purchased for the dividends they produce; these include preferred stocks, utilities, and blue- chip stocks that have a solid dividend paying history. Let's not forget that there are many pooled investments that can provide income as well, such as income-oriented mutual funds.

Form 1099-DIV

Used by banks and other financial institutions to report dividends and other distributions to taxpayers and to the IRS

Accumulation units

Vary in value based on the separate account performance.

Annuity units

Vary in value based on the separate account performance.

Vesting (ERISA)

Vesting defines when an employer contribution to a plan becomes the employee's money, such as an employer-matching contribution to a 401(k) plan. ERISA limits how long the vesting schedule can last before the employee is fully vested. **Note that an employee is always fully vested in her own contributions to a plan**

electronic communications

Websites, whether sponsored by the company itself or set up by an individual registered representative, are considered retail communications and are subject to applicable filing and recordkeeping rules. They must be reviewed and approved by a principal prior to first use and must contain no exaggerated claims or misleading information.

Reinvestment risk

When interest rates decline, it is difficult for bond investors to reinvest the proceeds from investment distributions and maintain the same level of return at the same level of (default) risk

Business Risk

Whether caused by bad management or unfortunate circumstances, some businesses will inevitably fail, even more so during economic recessions. Typically, when a business fails, it liquidates (sells off) its assets in a bankruptcy, pays its creditors from the proceeds, and pays whatever is left, if anything, to its shareholders. NS RISK

Zero-Bond Disadvantages

Zeroes are substantially more volatile than traditional bonds; their prices fluctuate widely with changes in interest rates. Moreover, the longer the time to maturity, the greater the volatility. When interest rates change, a zero's price changes much more as a percentage of its market value than an ordinary bond's price.

Nonqualified Annuity

a contract sold directly to the customer. is funded with AFTER-tax dollars. These contracts grow tax deferred and upon distribution the original investment comes out free from taxation and earnings are taxable as income.

cash account

a customer pays in full for any securities purchased.

Refund Provisions

a free-look period to the policyowner for 45 days from the execution of the application or for 10 days from the time the owner receives the policy, whichever is longer. During the free-look period, the policyowner may terminate the policy and receive all payments made. The refund provisions extend for two years from issuance of the policy. If, within the two-year period, the policyowner terminates participation in the contract, the insurer must refund the contract's cash value (the value calculated after the insurer receives the redemption notice) plus a percentage of the sales charges deducted. After the two-year period has lapsed, only the cash value need be refunded

Unit Refund Option

a minimum number of payments are made upon retirement. If value remains in the account after the death of the annuitant, it is payable in a lump sum to the annuitant's beneficiary. This option may be added as a rider to one of the others.

Dollar Cost Averaging

a person invests identical amounts at regular intervals. This form of investing allows the individual to purchase more shares when prices are low and fewer shares when prices are high. In a fluctuating market and over a period of time, the average cost per share is lower than the average price of the shares.

401(k) plans

allow the employee to elect to contribute a specific percentage of salary to a retirement account. Contributions are excluded from the employee's gross income and accumulate tax deferred. Employers may make matching contributions up to a specified percentage of the employee's contributions. Additionally, 401(k) plans permit certain hardship withdrawals.

periodic payment deferred annuity

allows investments over time. Benefit payments for this type of annuity are always deferred until a later date selected by the annuitant.

Diversification

allows the spreading of assets around. In short, don't put all your investment eggs in one basket. As such, diversification works very nicely to offset business risk.

Balanced Funds

also known as hybrid funds, invest in stocks for appreciation and bonds for income. In a balanced fund, different types of securities are purchased according to a formula the manager may adjust to reflect market conditions. A balanced fund's portfolio might contain 60% stocks and 40% bonds

advisory account

an account through which a Registered Investment Adviser (RIA) or an Investment Adviser Representative (IAR) of the RIA provides investment advice to their clients for a fee.

Index Annuity

an index annuity credits interest to the owner's account using a formula based on the performance of a particular stock index, such as the S&P 500. If the index does well, the annuitant is credited with a specified percentage of the growth of the index—typically 80% or 90% of the growth. This is known as the participation rate. If the index does poorly, the annuitant may receive a guaranteed minimum interest rate such as 1% or 2%.

10-K

annual report

Institutional communication

any written communication that is distributed or made available only to institutional investors but does not include a member firm's internal communications. **No preapproval of a principal is required

Zero-coupon bonds

are debt obligations that do not make regular interest payments. Instead, zeroes are issued at a deep discount from their face value. The difference between the discounted purchase price and the full face value at maturity is the return (accreted interest) the investor receives.

Money market mutual funds

are designed to have a stable NAV of $1 per share. They are not guaranteed, nor are they protected by FDIC insurance. It is rare, but it is possible to lose money in a money market mutual fund as a retail investor.

Nonqualified dividends

are distributed as short-term capital gains and are taxed as ordinary income.

Qualified Annuity

are funded with PREtax contributions and the entire distribution will be taxable as income.

Cyclical Industries

are highly sensitive to business cycles and inflation trends. Most cyclical industries produce: -steel, -heavy equipment (such as tractors, airplanes, and construction equipment), -auto industry -homebuilding, and -capital goods (such as washers and dryers).

Defensive industries

are least affected by normal business cycles. Companies in defensive industries generally produce nondurable consumer goods, such as: -food, -pharmaceuticals, -consumer staples (toothpaste, soap, etc.), -healthcare stocks, -tobacco, and -utilities.

Agency security funds

are not considered quite as safe from default risk as U.S. government funds; therefore, the yields on agency security funds will be higher than U.S. government fund yields.

Fixed Assets

are property, plant, and equipment. Unlike current assets, they are not easily converted into cash.

Special Situation Stocks

are stocks of a company with unusual profit potential resulting from nonrecurring circumstances, such as new management, the discovery of a valuable natural resource on corporate property, or the introduction of a new product. Takeover candidates or companies considering spinning off divisions during a restructuring would also fall into this category.

Qualified dividends

are taxed at the long-term capital gains rate

Money purchase plans

are the simplest of the qualified defined contribution plans. Any employer that meets funding requirements may offer such a plan. The employer simply contributes a specified fraction of the employee's compensation up to an indexed maximum.

12b-1 fee

are used to cover the costs of marketing and distributing the fund to investors. These 12b-1 fees are also used to compensate registered representatives for servicing an account (trailer commissions) but shouldn't be confused with sales charges. The fee is deducted quarterly as a percentage of the fund's average total NAV. -charged and reviewed quarterly -permits an additional .25% charge for shareholder services -The maximum 12b-1 fee is 0.75% for distribution and promotion. -The fee must reflect the anticipated level of distribution services.

balance sheet equation

assets = liabilities + owners' equity; or assets - liabilities = owners' equity.

Growth and Income Funds

attempt to combine the objectives of growth and current yield by diversifying its stock portfolio among companies showing long- term growth potential and companies paying high dividends. Often, both value and growth management styles are utilized.

Special Situation Funds

buy securities of companies that may benefit from a change within the companies or in the economy. Takeover candidates and turnaround situations are common investments. These funds are also speculative (high risk).

Sovereign Risk

capture the risk of a country defaulting on its commercial debt obligations. When a country is at risk of defaulting on its debt, the impact is felt on financial markets worldwide.

IRA rollover

ccurs when an IRA account owner takes temporary ownership of IRA account funds when moving the account to another custodian 100% of the funds withdrawn must be rolled into the new account within 60 days or they will be subject to tax and a 10% early withdrawal penalty, if applicable. An individual can make only 1 rollover from an IRA to another (or the same) IRA in any 365-day period (not per calendar year), regardless of the number of IRAs the individual may own.

independently prepared reprint (IPR)

consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher and was not materially altered by the member **must be preapproved by a principal if the communication meets the definition of a retail communication.

government- sponsored enterprises (GSEs)

corporations created by Congress to foster a public purpose, such as affordable housing.

financial objectives

customers goals and reasons for investing

Wash Sale Rule

disallows the loss or tax benefit from selling a security and repurchasing the security (or one substantially identical to it) in this manner -capital losses may not be used to offset gains or income if the investor sells a security at a loss and purchases the same or a substantially identical security within 30 days before or after the trade date.

stock purchase plans

essentially a type of payroll deduction plan that allows employees to buy company stock without having to effect the transactions themselves. Money is automatically taken out of a participant's paycheck on an after-tax basis every pay period and accrues in an escrow account until it is used to buy company shares on a periodic basis, such as every six months.

Legislative risk

federal and state legislatures have the power to change laws and this can impact securities (companies) negatively and result in capital loss for investors

stock options

give an employee the right to purchase a specified number of shares of the employer's common stock at a stated price over a stated time period.

accumulation phase

growth phase of a variable annuity

Variable life (VL) insurance

has a fixed, scheduled premium but differs from whole life insurance in that the premiums paid are split; part of the premium is placed in the general assets of the insurance company. These general assets are used to guarantee a minimum death benefit. The balance of the premium is placed in the separate account and represents the cash value of the policy.

single (individual) account

has one beneficial owner. The account holder is the only person who may: -control the investments within the account; and -request distributions of cash or securities from the account.

Financial questions

have answers that show up on a customer's personal balance sheet or income statement

Bond Funds

have income as their main investment objective. Some funds invest solely in investment grade corporate bonds. Others, seeking enhanced safety, invest only in government issues. Still others pursue capital appreciation by investing in lower-rated bonds for higher yields.

Large-cap fund

have market capitalization of greater than $10 billion. The lower the market cap, the greater the volatility.

Corporate bond funds

in general, have higher credit risk than various government issues but can still be classified as investment grade (safer) or non-investment grade (riskier) portfolios.

Subchapter M of the Internal Revenue Code (IRC)

in order to avoid triple taxation, a fund must distribute at least 90% of its NII to shareholders. The fund then pays taxes only on the undistributed amount.

Current Assets

include all cash and other items expected to be converted into cash within the next 12 months

Basic Asset Allocation

including different asset classes in a portfolio (e.g., stocks, bonds, real estate, and cash), there is a greater probability that some of the investments will provide satisfactory returns even if others are flat or losing value. Put another way, it reduces the risk of major losses that can result from over-emphasizing a single asset class, however resilient you might expect that class to be.

Regulation A+

intended for small- and medium-sized companies, the regulation specifically excludes investment companies

Growth/Value Funds

invest in stocks of companies whose businesses are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income

Global Funds

invest in the securities of both the United States and foreign countries. The risks involved in a fund concentrating in foreign securities are somewhat different from those for a domestic fund

Credit, Financial, Default Risk

involves the danger of losing all or part of one's invested principal through an issuer's failure.

AIR (Assumed Interest Rate)

is a conservative projection of the performance of the separate account over the estimated life of the contract

Beta

is a measure of its volatility in relation to the overall market (systematic risk) **A security that has a beta of 1.0 moves in line with the market. A security or portfolio with a beta greater than 1.0 is generally going to be more volatile than the overall market. The reverse is true when the beta is less than 1.0**

simplified employee pension plan (SEP)

is a qualified retirement plan designed for employers. Contributions made to each employee's individual retirement arrangement (IRA) (account) grow tax deferred until retirement. A SEP is a qualified plan that offers ease of administration to small-business owners.

Capital Asset Pricing Model (CAPM)

is a securities market investment theory that attempts to derive the expected return on an asset on the basis of the asset's systematic risk. The CAPM calculates a required return based on a risk multiplier called the beta coefficient.

federal gift tax rules

is a tax on the transfer of money or property to another person while getting nothing (or less than full value) in return. **In 2019, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it**

annuity

is an insurance contract designed to provide retirement income. The term annuity refers to a stream of payments guaranteed for some period of time—for the life of the annuitant, until the annuitant reaches a certain age, or for a specific number of years

Working Capital

is defined as its current assets (con- vertible to cash within one year) minus its current liabilities (due within one year) This measurement used to measure a company's ability to fund its day-to-day trading operations.

cost basis of inherited property

is either stepped up or stepped down to its fair market value (FMV) at the date of the decedent's death.

immediate annuity

is purchased with a lump sum, and the payout of benefits usually commences within 60 days.

Risk Tolerance

is the customer's emotional acceptance of investing and motivation to invest

purchasing power risk, constant dollar risk, inflation risk

is the effect of continually rising prices on investments, resulting in less purchasing power as time goes on

Capital/Principal risk

is the potential for an investor to lose all his money (invested capital) under circumstances either related or unrelated to an issuer's financial strength.

Fundamental analysis

is the study of the business prospects of an individual company within the context of its industry and the overall economy

Market cap

is the total number of shares of common stock outstanding multiplied by the CMV per share

Mid-cap fund

less aggressive and have in their portfolio shares of companies with a market capitalization of between $2 billion and $10 billion.

Income Events

monies received by an individual are subject to income tax. This includes salaries, bonuses, commissions, gratuities, dividends, and interest. The current tax system includes brackets. The tax bracket is defined as the percentage of tax due on the next dollar the individual will receive. This is referred to as your marginal income tax bracket.

Prepayment Risk

mortgage-backed securi- ties such as Government National Mortgage Association (GNMA) securities have a unique risk, which is referred to as prepayment risk. GNMAs and other related securities are backed by pools of mortgages. If interest rates fall and homeowners pay off their mortgages early through refinancing, all outstanding principal on those refinanced loans is returned to the investor. The investor is now faced with reinvestment risk since she is forced to look for a suitable fixed- income investment in a lower interest rate environment. Prepayment is simply an unexpected partial call and again, investors cannot reinvest their principal at the same or a higher rate of return.

Net Investment Income (NII)

net investment income = dividends + interest - expenses of the fund D+I-E **Dividends from NII are taxed as ordinary income to shareholders**

Principal-Protected Funds

offer investors a guarantee of principal, adjusted for fund dividends and distributions, on a set future date (maturity) while providing opportunities for higher returns through investment in higher risk and higher expected return asset classes such as equities. The basic guarantee is that the investor's return will never be less than the original investment, less any sales load.

annuity phase

payout phase of a variable annuity

know your customer (KYC) rule

places an obligation on the firm and associated person to seek information from customers.

High-yield bond funds

provide the highest yields due to their increased credit risk and are considered speculative investments.

Life insurance

provides a death benefit to a named beneficiary in the event of an insured's premature death.

balance sheet

provides a snapshot of a company's financial position at a specific point in time. It identifies the value of the company's assets (what it owns) and its liabilities (what it owes).

U.S. Government Fund

purchase securities issued by the U.S. Treasury or an agency of the U.S. government, such as Ginnie Mae. Investors in these funds seek current income and maximum safety.

Target-Date Funds

referred to as a life-cycle fund. According to a report by a large retirement plan provider, target-date funds are offered by nearly 90% of employer-sponsored defined contribution plans, such as 401(k) plans. Target-date funds are designed to help manage investment risk. With a target date in mind that is closest to the year an investor anticipates needing the money

Tactical asset allocation

refers to short-term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions. For our purposes, this typically requires an active management of the portfolio. Active management relies on the manager's stock picking and market timing ability to outperform market indexes.

Strategic Asset Allocation

refers to the proportion of various types of investments composing a long-term investment portfolio. This is often considered a passive management style, as conditions for re-balancing tend to be slow moving and a bit more predictable (think strategy).

Interest rate risk

refers to the sensitivity of an investment's price or value to fluctuations in interest rates. The term is generally associated with debt (i.e., bonds, bond funds) and preferred stocks, as their prices are interest rate sensitive. **An inverse relationship exists with these securities; as yields go up, prices go down, and vice versa**

Roth 401(k)

requires after-tax contributions but allows tax-free with- drawals, provided the plan owner is at least 591⁄2—though unlike a Roth IRA, there are no income limitations on who may have such a plan. Like a 401(k), it allows the employer to make matching contributions, but the employer's contributions must be made into a tra- ditional 401(k) account.

Hypothetical illustrations

shows assumed rates of return may be used to demonstrate the performance of variable life policies

portfolio diversification

strategy of holding different investments to protect against risk

fundamental analyst

takes a top-down approach to investing will look first at the overall economy, then look at industries that perform well within the current economy, and then zero in on individual companies within that industry in which to consider as an investment. A fundamental analyst (or fundamentalist) looks at fundamentals of a specific company like the quality of management, market share, what's in the pipeline, and how the financial statements and balance sheet look. A fundamentalist looks at what to buy—Company A or Company B.

Annuitization

the contract assets are now the property of the insurance company and the accumulation units are converted into a fixed number of annuity units. The annuity units will in turn throw off periodic income payments to the annuitant. At the time of annuitization, a payout option must be selected

Liquidity

the ease with which an asset can be converted into cash

realized capital gain

the gain that occurs when the owner of an asset actually sells it for more than he or she paid for it

Life Annuity/Straight Life

the insurance company will pay the annuitant for life. When the annuitant dies, there are no continuing payments to a beneficiary. Money remaining in the account reverts to the insurer

realized capital loss

the loss that occurs when the owner of an asset actually sells it for less than what he or she paid for it

unrealized gain or loss

the potential gain or loss but the investor has not sold the stock

market risk

the risk that investors may lose some of their principal due to price volatility in the overall market

large-cap funds

their portfolio consists of companies with a market capitalization of more than $10 billion. These types of funds can be more stable and less volatile in a turbulent market.

Once the contract is annuitized

there is no Death Benefit!!!

No-Load Funds

this means that the fund does not charge any type of sales load. However, not every type of shareholder fee is a sales load. No-loads may charge fees that are not sales loads

Political Risk

this risk specifically to the potential instability in the political underpinnings of the country. This type of risk would be most prevalent for investments made in emerging markets.

How to calculate NAV

total assets − liabilities = net assets of the fund (NAV)

speculation

try to earn much higher than average returns in exchange for higher than average risks

JOINT ACCOUNTS

two or more adults are named on the account as co-owners, with each allowed some form of control over the account. In addition to the appropriate new account form, a joint account agreement must be signed

Modern Portfolio Theory (MPT)

uses a scientific approach to measuring risk and, by extension, to choosing investments. It involves calculating projected returns of various portfolio combinations to identify those that are likely to provide the best returns at different levels of risk. It is the concept of minimizing risk by combining volatile and price-stable investments in a single portfolio.

Qualified Retirement plans

**allow PRE-tax contributions to be made** -earnings to grow tax deferred -Contributions tax deductible -Plan approval by IRS -Plan cannot discriminate -All withdrawals are TAXED -Plan is a TRUST

Non-qualified Retirement plans

**are funded with AFTER-tax money** -earnings grow tax deferred -Plan not approved by IRS -Plan CAN discriminate -Excess over Cost Base TAXED -Plan is NOT a trust

defined contribution plan

**provides for a specific contribution amount and may permit employee contributions.** -Employees and employer pay a specific amount into the plan for each participant. Employer contribution often are based upon a percentage of salary or a percentage of profits. -Easier to administer. The current contribution amount is specified by the plan's trust agreement and individual employee accounts are created; however, the benefit that will be paid at retirement is unknown. -These plans favor YOUNGER employees as they have more time for the money to grow.

CIP requirements prior to opening account

-Customer name -DOB -Address -SSN or Tax ID Non US: -Taxpayer ID# -Passport # and country of issuance -alien ID card # -any other Gov't issued documents evidencing residency or nationality

New account form

-Customer name -Tax identification number (e.g., Social Security number) -Address -Date of birth -Telephone number -Drivers license, passport information, or information from other government-issued identification -Employment status and occupation -Whether the customer is employed by a brokerage firm -Whether the customer owns more than 10% of a company (corporate insider) n Annual income -Net worth -Account investment objectives

Private Placement Stock

-Restricted -Unregistered (no registration statement on file with the SEC) -Lettered stock (investor agreed to terms by signing an investment letter) -Legend stock (a special inscription on the stock certificate indicates restricted transfer)

exemptions from federal registration (1933 Act)

-The U.S. government -U.S. municipalities and territories -Nonprofit religious, educational, and charitable organizations -Public utilities and common carriers whose activities are regulated as to rates and other items by a state or federal regulatory body -Commercial paper—maturity of 270 days or less -Banker's acceptances (BAs)—maturity of 270 days or less -Securities acquired in private placements(restricted stock)

final prospectus (effective prospectus, statutory prospectus)

-a description of the offering;the offering price; -selling discounts; -the offering date; -use of the proceeds; -a description of the underwriting, but not the actual contract; -a statement of the possibility that the issue's price may be stabilized; n a history of the business; -risks to the purchasers; -a description of management; -material financial information; -a legal opinion concerning the formation of the corporation; -an SEC disclaimer; and -an SEC review.

Any sales literature that contains performance data for an investment company other than a money market fund must include...

-a legend disclosing that the performance data quoted represents past performance; -that past performance does not guarantee future results; -that the investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost; and -that current performance may be lower or higher than the performance data quoted.

investments not permitted for funding IRAs..

-collectibles (e.g., antiques, gems, rare coins, works of art, stamps), -life insurance contracts, and -municipal bonds (which are considered inappropriate because the benefit of their tax-free interest is lost within a retirement plan).

Roth IRAs

-contributions are nondeductible (after tax), -contributions are made AFTER-tax -contributions can be made to a Roth IRA beyond the age of 701⁄2, -withdrawals from a Roth IRA need not begin at age 701⁄2.

RMD 10% early withdrawal penalty exceptions

-death; -disability; -the purchase of a principal residence by a first-time homebuyer (up to $10,000); -education expenses for the taxpayer, a spouse, a child, or a grandchild; -medical premiums for unemployed individuals; -medical expenses in excess of defined AGI limits; and -distributions while under Rule 72t: substantially equal periodic payments.

Full Power of Attorney

-deposit or withdraw cash or securities; and -make investment decisions for the account owner. Custodians, trustees, guardians, and other people filling similar legal duties are often given full POA.

In the Securities Act of 1933, SEC Rule 134 states that an offering may be promoted without a prospectus if the communication includes:

-factual information about the legal identity and business location of the company; -a brief indication of the general type of business of the company; -information with respect to the securities being offered, the title, amount being offered, any listing, assigned or expected ratings, and the price, maturity, interest, and yield (or bona fide estimates thereof); and -a legend, unless accompanied or preceded by a prospectus or it indicates where a prospectus may be obtained.

Investment Practices that are PROHIBITED within IRAs or any other retirement plan include:

-margin account trading, -short sales of stock, and -selling uncovered call options

Rule 147 Intrastate Offerings

-offerings that take place in entirely one state are exempt from registration when: >the issuer has its principal office and receives at least 80% of its income in the state >at least 80% of the issuer's assets are located within the state >at least 80% of the offering proceeds are used within the state >the B/D acting as underwriter is a resident of the state and has an office in the state >all purchasers are residents of the state

Types of accounts that must be opened as cash accounts

-personal retirement accounts (individual retirement accounts and tax-sheltered annuities [TSA]), corporate retirement accounts, and custodial accounts -(Uniform Gift to Minors Act and Uniform Transfers to Minors Act accounts).

Exemptions From Filing and Spot Check Requirements

-retail communications that previously have been filed with the department and that are to be used without material change; -retail communications that do not make any financial or investment recommendation or otherwise promote a product or service of the member; -retail communications that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker; -retail communications that do no more than identify the member or offer a specific security at a stated price; -press releases that are made available only to members of the media; -any reprint or excerpt of any article or report issued by a publisher ("reprint") -correspondence; -institutional communications; -communications that refer to types of investments solely as part of a listing of products or services offered by the member; -retail communications that are posted on an online interactive electronic forum; and -press releases issued by closed-end investment companies that are listed on the New York Stock Exchange (NYSE).

IRA contribution excess penalty

6% excess contribution penalty applies to the amount over the allowable portion (unless corrected shortly thereafter as defined by IRS rules).

NPI Nonpublic Personal Information

Any "personally identifiable financial information" that a financial institution collects about an individual in connection with providing a financial product or service that is not public. EX: Social Security number, driver's license number, account number, and security codes)

Rule 3110

Each member must retain copies of its registered representatives' correspondence according to the recordkeeping rule

Spot Checks

Each member's retail communications are subject to routine spot checks. Members must comply with written requests for such material by FINRA. Material filed previously with FINRA under this rule need not be resubmitted.

Filing Requirements during 1st year of operation

FINRA will require the member to file any retail communication that is published or used in any electronic or other public media (e.g., any generally accessible website, newspaper, magazine or other periodical, radio, television, telephone or audio recording, video display, sign or billboard, motion picture, or telephone directory [other than routine listings]) with FINRA at least 10 business days before first use (prefiling).

Traditional IRAs

Individual retirement arrangements in which qualified contributions are tax deductible and income and capital gains on investments within the account are not taxed until the money is withdrawn after age 59 1/2 and must be taken after age 70 1/2 annual contribution limit (2019) = $6,000 or 100% of earned income, whichever is less catch-up provision age 50 and above = $7,000

Discretionary Power

Investment decisions made by the person holding discretionary authority via (Limited Power of Attorney or with filing/signing trading authorization with the BD), **although the customer may continue to enter orders on his own** -Activity (buy or sell) -Amount (number of shares) -Asset (the security)

Tombstone Ad

Name of issuer -Type of security - Underwriter - Price - Effective date of sale

How to register via State securities (Blue Sky Laws)

Qualification: The issuer files with the state, independent of federal registration, and must meet all state requirements. Coordination: The issuer registers simultaneously with the state and the SEC. Both registrations become effective on the same date. Notice Filing: Securities listed on the major exchanges and on the Nasdaq, as well as investment companies registered under the Investment Company Act of 1940, are known as federal covered securities. State registration is not required, but most states require the filing of a notice that the issuer intends to offer its securities for sale in that state and the state may assess a filing fee.

REGULATION D: PRIVATE PLACEMENTS

Registration exemption for securities sold directly to Accredit Investors and no more than 35 Non-Accredited Investors Rule 504: Up to $1mm deal, no limit on Non-Accredited Rule 505: Up to $5mm deal, < 35 Non-Accredited Rule 506: Unlimited deal size, < 35 Non-Accredited Reg. D Road shows require pre-qualification of investors

Hypothetical Illustrations Rules

Rules that apply to the use of these illustrations include the following. -Hypothetical illustrations cannot be used to project or predict investment results. -Illustrations may use any combination of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate. The maximum rate illustrated should be reasonable considering market conditions and the available investment options. -Illustrations must reflect the maximum mortality and expense charges associated with the policy for each assumed rate of return illustrated. Current charges may also be illustrated

required minimum distributions (RMDs)

The amount that most qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70.5. Distributions before age 591⁄2 are subject to a 10% penalty as well as regular income tax **does allow an individual to delay that year's distribution until April 1 of the following year. However, if the first year's distribution is delayed, then the next year's distribution will be for two years**

Issuer

The company wishing to raise the capital

Updating Client Information

The completed new account form must be sent to the customer within 30 days. After that, account information must be updated no less frequently than every three years. Anytime the account is amended, an updated form must be sent to the customer within 30 days.

official statement

The full and fair disclosure document for municipal securities

Required Disclosures of Bond Mutual Fund Volatility Ratings

The name of the entity that issued the rating must be disclosed along with: -the date of the current rating, -a link to a website that includes the criteria and methodology used, -a statement that there is no standard method to determine the rating a description of the types of risk the rating measures (e.g., short-term volatility), and -a statement that there is no guarantee the fund will continue to have the same rating or perform in the future as rated

Stepped up Cost Basis

The readjustment of the value of an appreciated asset for tax purposes upon inheritance **If the security has increased in value, this higher tax valuation is referred to as a "stepped up" cost basis.**

Best Efforts

The underwriter acts as agent for the issuing corporation. The deal is contingent on the underwriter's ability to sell shares to the public. In a best efforts underwriting, the underwriter sells as much as possible, without financial liability for what remains unsold.

Transfer on Death (TOD)

This is an account that allows the registered owner of the account to pass all or a portion, upon death, to a named beneficiary. This account avoids probate (having the decedent's will declared genuine by a court of law) because the estate is bypassed. However, the assets in the account do not avoid estate tax, if applicable.

Official notice of sale

This is the notice that is used to obtain an underwriter for municipal bonds. Underwriters who are interested in bidding on municipal offerings will review the official notice of sale to determine if they would like to submit a bid to the issuer.

Sole Proprietorship

This is the simplest form of business organization and is treated like an individual account. In a sole proprietorship, all income (or loss) is that of the individual

Quantitative suitability

This obligation requires a broker to examine the clients port- folio and make sure that the recommendation is suitable in both amount and fit in light of the clients existing assets.

Customer-specific suitability

This obligation requires that a broker has a reasonable basis to believe that a particular recommendation is suitable for a given customer based on profile and objective. Essentially, the rep must ensure that a product is a good fit for a specific client in that it matches that client's goals.

unsolicited

Trades that are initiated by the customer

Firm commitment

Under its terms, the underwriter(s) (investment bank(s)) commits to buying the securities from the issuer and reselling them to the public. The underwriters assume the financial risk of incurring losses in the event they are unable to distribute all the shares to the public. In a firm commit- ment offering the underwriter is acting as a principal in the transaction.

red herring (preliminary prospectus)

Used to gauge investor reactions and gather indications of interest for corporate securities. A registered representative may discuss the issue with prospects during the cooling-off period and provide them with preliminary information through the red herring. It must carry a legend, printed in red, that declares that a registration statement has been filed with the SEC but is not yet effective. A red herring does not include the final offering price or the effective date of the offering.

Automated Customer Account Transfer Service (ACATS)

When a customer, whose securities account is carried by a broker-dealer, wants to transfer the account to another broker-dealer, ACATS automates and standardizes the procedure for the transfer.

Inheritance

When a person dies and leaves securities to heirs, the cost basis to the recipient is the fair market value (FMV) on the date of the owner's death

solicited order

When the registered representative initiates the trade

Community Property

a marital property classification recognized by some, but not all, states. In these jurisdictions, most property acquired during the marriage is considered to be owned jointly by both spouses and would be divided at the time of divorce, annulment, or death.

Limited Power of Attorney

allows an individual to have some, but not total, control over an account

Partnership (Unincorporated Association)

an unincorporated association of two or more individuals. Partnerships frequently open cash, margin, retirement, and other types of accounts necessary for business purposes.

Inside Information

any material information that has not been disseminated to, or is not readily available to, the general public.

Wrap accounts

are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee.

Electronic bulletin boards

are also considered retail communications, but a registered representative using one, or a chat room, need not identify himself as a registered person. Use of an online interactive forum by a registered representative must be approved by a principal, although each post does not require principal approval

Whether a first year firm or not, retail communications for investment companies (including mutual funds, variable contracts, and UITs) that include a ranking or comparison that is generally not published or is the creation of the investment company or the member must be filed with FINRA....

at least 10 business days before first use (prefiling).

Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)

expanded the penalties for insider trading and securities fraud. Using information not available to the public to profit or avoid a loss is one of the most serious violations in the industry because it undermines its integrity.

accredited investor

has a net worth of greater than $1 million, not including net equity in a primary residence; or has had an annual income greater than $200,000 in each of the two most recent years (or greater than $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.

Reasonable-basis suitability

his obligation requires a broker to perform due dili- gence and have a reasonable basis to believe that the investment has the potential to earn a profit. The recommendation must be suitable for at least some investors

underwriter

investment banker, a securities broker-dealer that specializes in underwriting new issues who helps with.. -advising corporations on the best ways to raise long-term capital, -raising capital for issuers by distributing new securities, -buying securities from issuers and reselling them to the public, -distributing large blocks of stock to the public and to institutions, -helping issuers comply with securities laws

bond mutual fund volatility rating

is a description issued by an independent third party relating to the sensitivity of the net asset value (NAV) of a portfolio of an open-end management investment company that invests in debt securities to changes in market conditions and the general economy, and is based on an evaluation of objective factors, including the credit quality of the fund's individual portfolio holdings, the market price volatility of the portfolio, the fund's performance, and specific risks, such as interest rate risk, prepayment risk, and currency risk.

research report

is a document prepared by an analyst or strategist, typically as part of a research team for an investment bank or broker-dealer. **Research reports must be preapproved by a principal if the communication meets the definition of a retail communication

nonqualified deferred compensation plan

is an agreement between a company and an employee in which the employee agrees to defer receipt of current income in favor of payout at retirement **usually benefit highly compensated employees who are just a few years away from retirement**

Transfer Initiation Form (TIF)

is sent to ACATS by the receiving firm. For purposes of this rule, customer authorization could be the customer's actual signature or an electronic signature. Once forwarded and received by the carrying firm, it has one business day to validate the securities listed on the TIF or take exception to the transfer instructions. If there are no exceptions, within three business days following validation, the carrying firm must complete the transfer of the account. All outstanding (open) orders in the system are canceled once the transfer request is initiated. A TIF can be rescinded upon receipt of subsequent written instructions from the customer.

Filing Requirements for an "Established Firm" (after completion of 1st year of registration)

may file retail communications relating to investment companies (including mutual funds, variable contracts, and UITs) within 10 business days of first use (post-filing).

IRA transfer

occurs when the account assets are sent directly from one custodian to another, and the account owner never takes possession of the funds. There is no limit on the number of transfers that may be made during a 12-month period.

Insider

officer, director, or stockholder owning more than 10% of a company's outstanding voting equity, immediate family or any person who has access to nonpublic information about a company.

prime brokerage account

one in which a customer, generally an institution, selects one member firm (the prime broker) to provide custody and other services, while other firms (executing brokers) handle all trades placed by the customer.

Tenants in Common (TIC)

ownership provides that a deceased tenant's fractional interest in the account be retained by that tenant's estate and not passed to the surviving tenant(s). If one account owner dies or is declared incompetent, all pending transactions and outstanding orders must be canceled immediately.

Joint Tenants With Right of Survivorship

ownership stipulates that a deceased tenant's interest in the account passes to the surviving tenant(s). It is for this reason that, of the joint accounts, only the JTWROS may include a TOD provision.

Public Appearance

participation in a seminar, webinar, forum (including an interactive electronic forum such as a chat room), radio or television interview, or other public appearance or public speaking activity. **Preapproval of a principal may be required but is not mandated

Generic advertising

promotes securities as an investment medium but does not refer to any specific security. Generic advertising often includes information about: -the securities investments that companies offer, - the nature of investment companies, - services offered in connection with the described securities, - explanations of the various types of investment companies, - descriptions of exchange and reinvestment privileges, and - where the public can write or call for further information

defined benefit plan

provides a specific retirement benefit (based on a formula) for the participant, and the plan sponsor assumes the investment risk. This type of plan may be used by firms that wish to favor OLDER employees; a much greater amount may be contributed for those with only a short time until retirement **promises a specific benefit at retirement that is determined by a formula involving typical retirement age, years of service, and compensation level achieved**

Ranking Entity

refers to any entity that provides general information about investment companies to the public, that is independent of the investment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company a ranking

FINRA Rule 3210 (Opening Accounts for Employees of Other Broker-Dealers)

requires an associated person to obtain the prior written consent of his employer when opening an account at another member or other financial institution including beneficial interest in/of

Securities Act of 1933 (Paper Act)

requires issuers of new securities to file registration statements with the SEC in order to provide investors with complete and accurate information in the form of a prospectus, which must be delivered prior to or at the time of solicitation of sales.

FINRA Rule 2273

requires that registered representatives, who move to a new firm and try to convince former customers to move with them, provide educational material outlining things for the customer to consider, including financial incentives that could rise to a conflict of interest for the representative.

fee-based accounts

that charge a single fee (either fixed or a percentage of assets in the account) instead of commission-based charges for brokerage services

margin account

the customer can use some cash and some credit to purchase securities. This is a leveraged purchase of securities; investors can buy more securities with some cash and some credit than they can purchase with just cash

tippers

the person who gives a tip of insider information

tippees

the person who receives a tip

If the ranking or comparison is generally published or is the creation of an independent entity (e.g., Lipper or Morningstar), what rules apply?

the usual filing rules for filing will apply (i.e., within 10 business days of first use [post-filing])

customer identification program (CIP)

used to verify the identity of any new customer.

Correspondence

written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30-calendar-day period **Pre- or post-review of a principal is required (reviewed before or after use).