Series 7 Chapter 5: Customer Accounts

If a customer wishes to open a cash account, who must sign the new account form? A) Only the customer B) The customer, the registered representative, and the principal C) Only the principal D) Only the registered representative

Your answer, Only the customer, was incorrect. The correct answer was: Only the principal The customer's signature nor the registered representatives signature is required to open a cash account. A principal must review and then accept the new account by signing the form.

An agent taking which of the following actions would be committing a violation? A) Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent. B) Selling securities from a corporate account by using limited power of attorney trading authority for the account. C) Buying securities in a joint account at the request of 1 party only. D) Buying securities in a cash account with the consent of the customer.

Your answer, Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent., was correct!. The custodian, not the beneficial owner (minor), is the person who has the authority to make investment decisions for an account. Any tenant in a joint account may give instructions for the account.

When a customer gives limited power of attorney to his registered representative, which of the following statements is TRUE? A) The registered representative needs written permission from the customer for each trade. B) A principal must initial each order before it is entered. C) The customer must renew the power of attorney each year. D) The power of attorney must have the customer's signature.

Your answer, The power of attorney must have the customer's signature., was correct!. The registered representative must have prior written authority from the customer and approval from a principal before exercising discretionary authority. Although a designated principal must review the account frequently and review and approve all trades on a daily basis, prior approval of discretionary orders is not required.

All of the following could open a joint account EXCEPT: A) a father and 10-year-old son. B) a married couple. C) Two business partners. D) a mother and 22-year-old daughter.

Your answer, Two business partners., was incorrect. The correct answer was: a father and 10-year-old son. Joint accounts can only be opened between adults.

A gift given to a minor under UTMA may be revoked under which of the following circumstances? A) If the minor dies before reaching the age of majority. B) If the custodian dies before the minor reaches the age of majority. C) At any time before the minor reaches the age of majority. D) Under no circumstances.

Your answer, At any time before the minor reaches the age of majority., was incorrect. The correct answer was: Under no circumstances. Under both The Uniform Transfer to Minors Act (UTMA) and The Uniform Gifts to Minors Act (UGMA), all gifts to minors are irrevocable.

Under SEC rules, which of the following events require a broker/dealer to furnish a copy of the account record to a customer? Change of broker/dealers address Change of customer's name or address Change of customer's investment objectives Change in registered representative assigned to the account A) I and III B) II and IV C) I and IV D) II and III

Your answer, I and III, was incorrect. The correct answer was: II and III Any change in a customer's status, particularly those that may impact the suitability of recommendations, requires a broker/dealer to update the customer account record and furnish it to the customer within 30 days of receipt of the change notice.

Whose Social Security number is required to open a custodial account? A) Minor's. B) Custodian's. C) Parent's or guardian's. D) Custodian, parent or guardian and minor.

Your answer, Minor's., was correct!. The minor's Social Security number is required because the account is fully owned by, and taxed to, the minor-not to either the custodian or the parent.

If a person wishes to enter orders in his spouse's account, he: A) could never be permitted to do so as there is no provision that would allow for it to occur. B) is free to do so. C) needs verbal permission from his spouse. D) needs written permission from his spouse via a power of attorney.

Your answer, needs written permission from his spouse via a power of attorney., was correct!. The only persons permitted to enter orders in an account are the account owners. For a person to enter orders in his spouse's account, the spouse who's name is on the account must sign a power of attorney.

All of the following are fiduciary accounts EXCEPT: A) transfer on death (TOD) accounts. B) guardian accounts. C) trust accounts. D) estate accounts.

Your answer, trust accounts., was incorrect. The correct answer was: transfer on death (TOD) accounts. A TOD account is an individual account in which, on the death of the account owner, the assets pass to a designated beneficiary.

A client of your member firm dies. In correct order, you should freeze the account. accept orders from the executor. obtain the death certificate and other legal documents. cancel all open orders. A) II, III, IV, I. B) III, IV, I, II. C) IV, I, III, II. D) I, IV, III, II.

Your answer, I, IV, III, II., was incorrect. The correct answer was: IV, I, III, II. Upon death of a client, all open orders must be canceled. The account is then frozen until proper legal documentation is received. Once that has occurred, the executor may begin conducting activity in the account.

Mr. Jack Smith has a margin account in his own name with BR Securities, Inc. He also has a joint tenancy account with his father, John Smith. Mrs. Smith, Jack's wife, calls Joe Johnson, the registered representative who is assigned to both accounts, and instructs him to sell 100 shares of AOL from Jack's margin account. Which of the following should the registered representative do? A) Not execute the order until he receives written authority from Jack, which authorizes his wife to act with discretionary authority over his margin account. B) Transfer the AOL to the joint account and then execute the transaction in the joint account. C) Execute the transaction immediately. D) Not execute the order until he receives verbal authority from Jack, which authorizes his father to act with discretionary authority over his margin account.

Your answer, Execute the transaction immediately., was incorrect. The correct answer was: Not execute the order until he receives written authority from Jack, which authorizes his wife to act with discretionary authority over his margin account. A registered representative may not execute a third-party order (one given by someone other than the account owner) without a signed written discretionary authorization from the account owner that has been accepted by the representative and a principal of the firm.

One of your customers will be traveling extensively throughout Europe and asks your broker dealer to hold his mail and not send statements to his home. Under the rules, which of the following is TRUE? A) During periods of time when mail is being held, it is assumed that the broker dealer will not be able to communicate with the customer in any way. B) No additional actions need be taken by the broker dealer once they grant the request. C) Normal requests can be for up to to three months, but longer periods may be granted for acceptable reasons. D) For matters of convenience, a customer can ask a broker dealer to hold mail for any length of time.

Your answer, For matters of convenience, a customer can ask a broker dealer to hold mail for any length of time., was incorrect. The correct answer was: Normal requests can be for up to to three months, but longer periods may be granted for acceptable reasons. A request must include the time period the request is being made for up to three months. Requests for longer periods may be granted for an acceptable reason such as safety or security concerns, but not merely for the sake of of convenience. The member firm must inform the customer of any alternate methods that the customer can use to receive or monitor account activity, such as email or through the member firm's website, and the member must obtain a confirmation from the customer that this information regarding alternate methods of communication was received.

Which of the following activities are disallowed under FINRA rules? Opening an account for a 16-year-old individual. Accepting a sale in a joint account from one of the owners and having the check payable in the name of that individual. Accepting a sale order from the husband only in a joint account owned by both husband and wife. Requiring written discretionary authorization before accepting orders for a discretionary account. A) II and III. B) I and IV. C) I and II. D) III and IV.

Your answer, I and II., was correct!. The question is asking for the nonallowable practices. We cannot open an account for a minor, nor may we make a check payable to only one of the parties in a joint account.

A power of attorney is not required for a registered representative to choose which of the following order instructions? Security to be bought or sold Number of shares to be bought or sold Time of execution Price of execution. A) III and IV. B) I and III. C) I and II. D) II and IV.

Your answer, I and III., was incorrect. The correct answer was: III and IV. If a registered representative chooses price or timing of an order only, that order is not a discretionary order and a power of attorney is not required. The order is a not-held order. To be discretionary, the representative must choose one or more of the following: the action (buy or sell), the security, or the amount (number of shares).

Which of the following statements regarding UGMA accounts are NOT true? Only one custodian may be appointed for an UGMA account in the name of a minor. A gift under UGMA can be revoked. A custodian is liable for imprudence. Short sales are permitted in an UGMA account. A) I and IV. B) II and III. C) II and IV. D) I and II.

Your answer, II and III., was incorrect. The correct answer was: II and IV. An UGMA account is allowed only one custodian and one minor. Short selling is prohibited in UGMA accounts. Once a gift is given, it is irrevocable. The custodian has fiduciary responsibility toward the minor to invest conservatively, and the custodian is liable for imprudence in handling the entrusted funds.

Your customer is interested in a product that offers part principal protection like a debt instrument but has return that is partly based on the return of a single stock or a basket of stocks like an index. Such products are known as: A) Direct participation programs (DPPs). B) Equity-linked notes (ELNs). C) Real estate investment trusts (REITs). D) Treasury bonds.

Your answer, Real estate investment trusts (REITs)., was incorrect. The correct answer was: Equity-linked notes (ELNs). Equity-linked notes (ELNs) or Index-linked notes are debt instruments that in one variation can offer some principal protection (known as principal-protected) as well as a final payment that is based on the return of a single stock or a basket of stocks. Some ELNs are exchange traded but not all.

An agent taking which of the following actions would be committing a violation? A) Buying securities in a cash account with the consent of the customer. B) Buying securities in a joint account at the request of 1 party only. C) Selling securities from a corporate account by using limited power of attorney trading authority for the account. D) Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent.

Your answer, Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent., was correct!. The custodian, not the beneficial owner (minor), is the person who has the authority to make investment decisions for an account. Any tenant in a joint account may give instructions for the account.

A customer asks a registered representative while speaking on the phone to send duplicate confirms and statements to an outside Investment Advisor. The RR should? A) Ask that the request be made in writing in order to have the firm abide by the request once received. B) Send an instruction to the registration and processing department for immediate execution. C) Deny the request, as this would require a power of attorney. D) Note the request on the account form and follow the instructions immediately.

Your answer, Send an instruction to the registration and processing department for immediate execution., was incorrect. The correct answer was: Ask that the request be made in writing in order to have the firm abide by the request once received. Such requests must be in writing before they can be followed. While statements and confirmations can be sent to someone who holds power of attorney over the account, a POA is not required for a customer to request such an instruction be followed for ones own account.

Two siblings have an account with your broker/dealer registered as joint tenants with rights of survivorship. Both live in a state that recognizes community property as an ownership designation. If one of the siblings dies, which of the following will occur? A) The deceased sibling's interest in the account will be divided in accordance with the community property laws of that state. B) The deceased sibling's interest in the account will become the property of her estate. C) The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration. D) The entire account will be liquidated and divided in accordance with the community property laws of that state.

Your answer, The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration., was correct!. This account, registered as joint tenants with rights of survivorship, will be handled in accordance with that account registration at the time of the death of either sibling. The deceased sibling's interest in the account will pass to the surviving sibling. Community property laws in jurisdictions that presume that type of ownership designation only applies to marital property (property acquired by the two individuals while married). Therefore, community property laws would not be applicable to siblings.

When a customer opens an account with a financial institution, the institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. How often must the customer receive an updated notice containing the same information? A) At least on a quarterly basis. B) At least on an annual basis. C) At least on a monthly basis. D) At least on a semiannual basis.

Your answer, At least on an annual basis., was correct!. The institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. The customer must receive the information upon opening his account and at least annually thereafter.

A fiduciary acting under the prudent investor rule should recognize that one of the following transactions would not be acceptable or meet the standards of the rule. Which is it? A) Purchasing shares of a tech sector mutual fund B) Buying sector funds C) Writing uncovered calls D) Purchasing BBB-rated debentures

Your answer, Buying sector funds, was incorrect. The correct answer was: Writing uncovered calls The prudent investor rule permits a fiduciary to invest in securities that a reasonably prudent investor, seeking income and preservation of capital, might invest in for his own account. Writing uncovered (naked) calls which have an unlimited loss potential would not meet the standard of the rule.

When a customer wishes to open an account as guardian, you would ask for: A) a copy of the court order and other guardianship papers. B) a signed customer account card, credit agreement, and loan consent. C) a limited power of attorney. D) a full power of attorney.

Your answer, a full power of attorney., was incorrect. The correct answer was: a copy of the court order and other guardianship papers. Guardianship is one of several account titles that require legal papers to open the account. Because a guardian is appointed by court order, the broker/dealer would need a copy of that court order.

Broker/dealers are required to maintain customer identification programs (CIPs) and to check the names of new clients against A) a list of specially designated nationals (SDNs) maintained by the Office of Foreign Assets Control B) a list compiled by FINRA C) the FBI's most wanted list D) a list maintained by the Securities Exchange Commission (SEC)

Your answer, a list maintained by the Securities Exchange Commission (SEC), was incorrect. The correct answer was: a list of specially designated nationals (SDNs) maintained by the Office of Foreign Assets Control All financial institutions are required by federal law to maintain a customer identification program and to check the identifying information supplied by new clients against the specially designated nationals (SDNs) list maintained by the Office of Foreign Assets Control (OFAC).

If a registered representative opens a joint account for three people, the registered representative should obtain information on: A) the tenant with trading authority. B) the senior tenant in the account. C) a single tenant of the account holders choosing. D) all of the tenants.

Your answer, all of the tenants., was correct!. If a registered representative opens a joint account for any number of people, the registered representative must obtain information on all of the tenants in the account.

All of the following statements regarding customer accounts are true EXCEPT: A) the customer who opens a numbered account must sign a statement attesting to ownership. B) stock held in a custodial account may not be held in street name. C) margin trading in a fiduciary account does not require any special documentation. D) stock held under JTWROS goes to the survivor in the event of the death of one of the tenants.

Your answer, stock held in a custodial account may not be held in street name., was incorrect. The correct answer was: margin trading in a fiduciary account does not require any special documentation. Trading on margin is prohibited in fiduciary accounts except with the appropriate documentation. Stock held in a custodial account must be registered to the custodian on behalf of the minor (the beneficial owner). Numbered accounts are permitted with a letter signed by the customer. Stock held under JTWROS passes to the survivor(s) in the event of death of one of the tenants.

An employee of another broker/dealer would like to open an account with your firm. Under FINRA rules, all of the following statements regarding the employee and the account are true EXCEPT A) the employer must be notified in writing of the opening of the account B) the broker/dealer holding the account must approve each transaction before entry of the order C) the employer need not grant prior written approval to open the account D) if the employer requests them, they must receive duplicate copies of all account transactions

Your answer, the employer need not grant prior written approval to open the account, was incorrect. The correct answer was: the broker/dealer holding the account must approve each transaction before entry of the order FINRA rules do not require prior approval of individual transactions by the broker/dealer (at which the account has been opened). The rules do require that the employing broker/dealer be notified before the account is opened in writing and that duplicate copies of account statements and transaction confirmations be supplied if the employing BD has requested them. Prior approval of the employing BD to open the account is not required.

An employee of a firm registers to open an account at another member firm. Under FINRA rules, all of the following statements are true EXCEPT A) the employee does not need written permission from the employing member firm B) the employing member firm must receive duplicate statements and confirmations if requested in writing C) FINRA must receive duplicate statements and confirmations D) the employing member firm must be notified in writing

Your answer, the employing member firm must receive duplicate statements and confirmations if requested in writing, was incorrect. The correct answer was: FINRA must receive duplicate statements and confirmations Under FINRA rules, the employing member must be notified in writing of the prospective account and must be provided with duplicate statements and confirmations if they request so in writing. The employee does not need written permission from the employing member before opening the account. There is no requirement that FINRA be either notified or provided with duplicate statements and confirmations.

Upon being informed that one party to a tenants in common account has died, a registered representative should: A) allow the surviving tenants to continue trading. B) transfer half of the assets to the survivor. C) freeze the account. D) transfer all of the assets to the surviving tenants.

Your answer, transfer all of the assets to the surviving tenants., was incorrect. The correct answer was: freeze the account. The assets of a deceased tenant in a TIC account eventually go to his estate. A registered representative first freezes the account and then awaits the proper court documents. If the account was JTWROS, trading by the surviving tenants could continue.

Upon being informed that one party to a tenants in common account has died, a registered representative should: A) transfer half of the assets to the survivor. B) allow the surviving tenants to continue trading. C) freeze the account. D) transfer all of the assets to the surviving tenants.

Your answer, transfer half of the assets to the survivor., was incorrect. The correct answer was: freeze the account. The assets of a deceased tenant in a TIC account eventually go to his estate. A registered representative first freezes the account and then awaits the proper court documents. If the account was JTWROS, trading by the surviving tenants could continue.

Dividends have been received into an UGMA account. The custodian may do any of the following EXCEPT A) reinvest the dividends in more stock B) use the dividends to pay the taxes on the account C) withdraw the dividends and place them in an UGMA savings account D) withdraw the dividends as a loan from the account

Your answer, use the dividends to pay the taxes on the account, was incorrect. The correct answer was: withdraw the dividends as a loan from the account The custodian may make investments deemed prudent and satisfy any tax obligations with the assets in the account on behalf of the minor. The custodian could not withdraw the funds as a loan from the account.

A new client's name appears on the SDN list. After your broker/dealer notifies OFAC, the likely outcome will be A) you will be directed by OFAC to continue doing business with the client but report all broker/dealer business dealings to OFAC B) the client's assets will be frozen and the broker/dealer will be directed to cease doing business with the client C) you, the registered representative, will be directed to let the client know that the client's name has appeared on the SDN list D) OFAC will have the client arrested under federal law

Your answer, you will be directed by OFAC to continue doing business with the client but report all broker/dealer business dealings to OFAC, was incorrect. The correct answer was: the client's assets will be frozen and the broker/dealer will be directed to cease doing business with the client When the name of an individual or group appears on the specially designated nationals (SDNs) list, the individual's/group's assets will be blocked (frozen), and US financial institutions will be prohibited from doing business with them.