Chapter 2 Custom Exam
Which of the following choices is considered a qualified retirement plan? A) A 401(k) plan B) An IRA C) A 529 plan D) A Roth IRA
A) A 401(k) plan Qualified is an ERISA term associated with certain work sponsored retirement plans. Typically, these qualified plans grow tax-deferred and are funded with pretax dollars through employee and/or employer contributions. Traditional IRAs, Roth IRAs, and 529 plans are individually funded vehicles that have nothing to do with the client's employer or ERISA.
A corporation wishes to open a cash account. Which of the following documents is required? A) A corporate resolution B) A copy of the corporate charter C) A hypothecation agreement D) A risk disclosure document
A) A corporate resolution A corporate resolution authorizing a person to trade for the account is necessary to open a corporate cash account. A risk disclosure document may be required but only if options or penny stocks are going to be traded in the account. A hypothecation agreement and corporate charter are required to open a margin account.
Dennis, Al, and Dan have opened a securities account with your firm as tenants in common. All of the following are TRUE, EXCEPT: A) If Dennis dies, his interest in the account will pass to Al and Dan B) You may accept an order from either Dennis, Al, or Dan C) Checks issued by your firm from the account will be in the name of all three co-owners D) When opening the account, you should obtain Social Security numbers from all three co- owners
A) If Dennis dies, his interest in the account will pass to Al and Dan In a tenants-in-common account, the interest of a deceased owner passes to the estate of the deceased. The surviving owners of the account (Al and Dan) would receive the securities if the account was a joint tenants with rights of survivorship account.
A client's wife calls and wants to purchase 200 shares of XYZ in her husband's personal account. The registered representative handling the account knows that a favorable earnings report is about to be issued. The registered representative: A) May not accept the order because the wife does not have trading authorization to enter orders for the husband's personal account B) May enter the order because the husband had previously mentioned he would like to establish a position in XYZ C) May enter the order in the husband's account if the wife also has a joint account with her husband D) May not enter the order because the earnings report has not been released
A) May not accept the order because the wife does not have trading authorization to enter orders for the husband's personal account The registered representative may not accept the order because the wife does not have trading authorization to enter orders for her husband's personal account.
The spouse of a brokerage firm employee wants to open a brokerage account in order to invest in bonds. If this account is opened at a firm that does not employ her spouse, the employee of the firm is required to: A) Obtain the prior written consent of the employing firm in order to open the account B) Obtain the prior written consent of the employing firm if the account is a joint account C) Obtain the written consent of the employing firm within a reasonable period after the account is opened D) Obtain the prior written consent of the employing firm for each order being entered
A) Obtain the prior written consent of the employing firm in order to open the account Employees of broker-dealers who intend to open outside accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. This rule also applies to accounts being opened for the spouse or dependent children of member firm employees.
Which of the following terms is associated with the process of a customer instructing his bank to deliver securities against payment by the clearing firm? A) Receipt versus Payment (RVP) B) Cash on Delivery (COD) C) Delivery versus Payment (DVP) D) Power of Attorney (POA)
A) Receipt versus Payment (RVP) DVP (Delivery versus Payment) and COD (Cash on Delivery) are general acronyms used to describe a relationship in which a customer uses a bank to settle trades with executing firms. The firm delivers securities against the bank payment and pays against the bank delivery of securities. When discussing a given transaction, a DVP occurs when the dealer delivers securities to the bank in return for a cash payment from the bank. An RVP (Receipt versus Payment) occurs when the dealer receives securities from the bank and makes a cash payment to the bank. The transaction described in the question is an example of an RVP transaction in which the customer's bank is delivering securities in return for payment by the broker-dealer. It is important to remember that customers (usually institutions) set up brokerage accounts and place orders at these firms. However, trades settle through custodian banks designated by the customers. The broker-dealer will contact the bank, which will send payment or receive securities on behalf of the customers. The broker-dealer will not hold the customer funds or securities.
An insider is not permitted to: A) Sell short his corporation's stock B) Exercise options on his corporation's stock C) Use public information D) Sell stock under Rule 144
A) Sell short his corporation's stock An insider is not permitted to sell short his corporation's stock nor act on insider (nonpublic) information.
Which of the following statements is TRUE concerning Regulation SP and a customer choosing to opt out of information sharing? A) The customer is required to positively affirm that he wants to opt out of information sharing B) The customer is required only to opt out if the account is held at a clearing firm C) The customer may be required to write a letter to opt out of information sharing D) The broker-dealer is not required to provide an opt-out notice
A) The customer is required to positively affirm that he wants to opt out of information sharing Under Regulation SP, a consumer must be given a reasonable opportunity to opt out of information sharing. This is done through the delivery of the privacy notice and the customer must positively affirm he wants to opt out. The methods used must be reasonable, such as a check-off box, Web site, or a toll-free phone number. It is considered too burdensome for a consumer or a customer to write a letter to opt out of the information sharing.
Which of the following situations should be escalated to the firm's compliance department? A) The customer's mail is sent only to the registered representative's primary address. B) The customer's mail is sent only to the primary address. C) The customer's mail is sent both to the primary address and her daughter's address. D) The customer's mail is sent only to a post office address.
A) The customer's mail is sent only to the registered representative's primary address. New account procedures require a primary address (e.g., a single family home), apartment number, condominium, or other permanent address. Once this is obtained, communications (mail) may have a different mailing address such as a business address, vacation address, or a post office box. In addition, with the customer's written permission, communications may also be sent to a third party such as a relative or investment adviser. If communications are sent only to the registered representative's primary address, this is a red flag since neither the customer nor a fiduciary for the customer is receiving communications from the broker-dealer. This situation should be investigated by the compliance department.
Premature withdrawals from a traditional IRA are subject to a penalty of: A) 5% B) 10% C) 15% D) 25%
B) 10% A person under the age of 59 1/2 who withdraws funds (premature withdrawals) from an IRA, or most retirement plans, is subject to a penalty of 10%.
All of the following are typical characteristics of a 401(k) plan, EXCEPT: A) Employee contributions are fully and immediately vested B) Employers must match employee contributions C) An employee's taxable income is reduced by employee contributions D) Employee contributions grow on a tax-deferred basis
B) Employers must match employee contributions In a 401(k) plan, an employee can usually make a pre-tax contribution into the plan and reduce taxable income. Employee contributions and growth in the account are tax-deferred. Employers are not required to match contributions but may do so.
Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as: A) Equal and divided B) Equal and undivided C) Unequal and divided D) Unequal and undivided
B) Equal and undivided In a JTWROS account, each holder's interest is equal and undivided. Each position in the account is owned by both persons.
A pattern day trader is defined as an individual who day-trades no less than: A) Three or more times in a five-day period B) Four or more times in a five-day period C) Five or more times in a five-day period D) Six or more times in a five-day period
B) Four or more times in a five-day period A pattern day trader is defined as a person who day-trades no less than four or more times in a five-day period.
A broker-dealer's privacy notice must include all the following information, EXCEPT the: A) Type of personal information that the firm collects B) Names of any other financial institutions with which the firm is affiliated C) Fact that clients may opt out of having their information shared with non-affiliates D)Types of third parties to which the firm may disclose information
B) Names of any other financial institutions with which the firm is affiliated A privacy notice is not required to include the names of any other financial institutions with which the firm is affiliated.
Before accepting a delivery versus payment (DVP) order from a customer, a broker-dealer must: A) Notify FINRA B) Obtain the name of the customer's agent from the customer C) Receive approval of the trade from the contrabroker D) Notify the appropriate banking regulator
B) Obtain the name of the customer's agent from the customer Prior to accepting a DVP (Delivery versus Payment) or RVP (Receipt versus Payment) order from a customer, a broker-dealer must receive the name of the customer's agent and the customer's account number. The order ticket must be marked DVP or RVP.
A client would like to open a numbered account. An RR may open the account: A) Under no circumstances B) Provided the broker-dealer has a written statement on file signed by the client C) Provided the broker-dealer has a written statement on file signed by the client that is also filed with the appropriate SRO D) Provided the broker-dealer has a written statement on file signed by the client and the client is an accredited investor
B) Provided the broker-dealer has a written statement on file signed by the client Any client may open a numbered account for reasons of confidentiality. However, the registered representative should open the account only if the customer signs a written statement acknowledging ownership of the account. This document must be kept on file at the brokerage firm, but does not need to be filed with an SRO.
Which of the following choices is information that does not need to be included in the written supervisory procedures (WSP) manual? A) Titles B) Residential address and phone number C) Registration status D) Supervisory responsibilities
B) Residential address and phone number The titles, registration status, supervisory responsibilities, and locations of supervisory personnel are required. The residential address and phone number is not required.
A day trading account that has exceeded its buying power limitations is: A) Restricted to cash available basis trading B) Restricted to buying power of two times the maintenance margin excess C) Frozen until the excess is corrected D) Restricted to buying power of four times the maintenance margin excess
B) Restricted to buying power of two times the maintenance margin excess A day trading account has buying power equal to four times the trader's maintenance margin excess. If the buying power limitation is exceeded, a day trading margin call must be met. During this time, the account is restricted to buying power of two times the maintenance margin excess.
A registered representative discovers that one of her customers is on the Office of Foreign Assets Control (OFAC) list. The RR or another person at her firm must notify: A) The Office of the Comptroller of the Currency B) The Treasury Department C) The SEC D) FINRA
B) The Treasury Department Firms are prohibited from transacting business with individuals and entities that are identified on the Office of Foreign Assets Control (OFAC) list. If a registered representative discovers that one of the owners or beneficiaries of an account is on the OFAC list (or if someone on the list tries to open an account with his firm), the RR or another person from her firm should contact the U.S. Treasury Department immediately. The Financial Crimes Enforcement Network (FinCEN) and OFAC are both a part of the Treasury Department.
A customer would like to open an individual account and would like his confirmations sent to a P.O. Box. What other information is needed to comply with the client's request? A) The client's business address B) The client's primary residential address C) The client's most recent address D) No additional information is needed
B) The client's primary residential address New account procedures require a primary residential address, such as a single family home, apartment number, condominium or other permanent address. Once this is obtained, communications may be sent to a post office box.
On May 25, the president of MaxCo bought 3,000 shares of MaxCo stock in the open market at $33. Two months later, the stock has increased to $40. If the president now wants to sell the shares: A) Permission must be granted by the MaxCo board of directors B) The profit from the trade must be forfeited according to the short-swing profit rule C) Notification must be made to the corporation's legal counsel D) Permission must be granted by FINRA
B) The profit from the trade must be forfeited according to the short-swing profit rule The Securities Exchange Act of 1934 prohibits insiders from making short-swing profits. A short-swing profit is a profit made on stock held by insiders for less than six months. If the president of MaxCo sold stock two months after it was purchased, MaxCo could sue for recovery of the profit. Under Rule 144, the six-month holding period applies only to restricted stock and, since the stock was purchased in the open market, the shares would be considered control stock.
An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within: A) 10 days B) 30 days C) 60 days D) 90 days
C) 60 days When a lump-sum withdrawal from a corporate pension plan, Keogh, or IRA is deposited in an IRA, it is referred to as a rollover. If the rollover is done within 60 days, the investor will avoid a taxable event. Only one rollover is permitted each year.
While opening an account for a new customer, you ask for the customer's occupation. The client declines to provide this information. What course of action should you take? A) Report the customer to FINRA B) Tell the client you cannot accept her business C) Document the client's refusal on the account form D) Leave the space on the form blank and proceed with opening the account
C) Document the client's refusal on the account form
Which TWO of the following statements are TRUE concerning Section 457 plans? These plans are state-sponsored and used to fund higher education expenses These plans are used to fund retirement These plans grow tax-deferred These plans grow tax-free A) I and III B) I and IV C) II and III D) II and IV
C) II and III A Section 457 plan is a type of qualified retirement plan used by many public sector workers. 457 plans grow on a tax-deferred basis and are generally subject to the same contribution limits as 401(k) and 403(b) plans. Each has similar tax features and contribution allowances. The difference between the plans is the type of employee who may use them. A 401(k) plan is used primarily by for-profit employees, a 403(b) plan by nonprofit employees, and a 457 plan by some local government workers. State-sponsored, higher education savings plans that may be opened by an investor are referred to as Section 529 plans, not 457 plans.
According to FINRA which TWO of the following are not required when opening a cash account for a customer? Name Signature Is customer of legal age Social Security Number A) I and III B) II and III C) II and IV D) III and IV
C) II and IV FINRA requires the customer's name and residence address, if the customer is a of legal age, name or names of registered representatives servicing the account and the signature of the principal approving the account when opening a cash account. FINRA does not require the customer's signature, nor does it require his or her social security number.
An individual transferring an IRA from one trustee to another: A) Must be at least 59 1/2 to avoid penalties B) Will receive a check that must be rolled over within 60 days of receipt to avoid taxes C) Is not subject to taxes or penalties D) May only do so once each year
C) Is not subject to taxes or penalties A transfer of funds from one trustee to another is not considered a distribution or a rollover. There is neither a limit to the number of transfers that an individual may do, nor are there any taxes or penalties. This differs from receiving a distribution from a retirement plan. The distribution must be rolled over into another qualified plan, within 60 days of receiving the money, in order to avoid taxes and penalties. Rollovers may be done only once each year.
A husband and wife have a joint account with right of survivorship. If one of the parties places an order, the RR: A) Should contact the other party prior to placing the order B) Must have the order approved by a principal prior to execution C) May accept the order D) May accept the order only if the other party has granted trading authorization
C) May accept the order Joint accounts have more than one owner of record. In most cases, any joint owner may initiate activity in the account (e.g., enter orders to buy or sell securities). There is no requirement to contact the other party prior to placing an order. Trading authorization is required if a person who is not the owner of the account is going to enter orders.
A customer would like to open an account designated by number. The registered representative should: A) Open the account B) Not open the account because it is a violation of SEC rules C) Open the account if the customer signs a written statement acknowledging the account is the customer's D) Not open the account because it is a violation of industry rules
C) Open the account if the customer signs a written statement acknowledging the account is the customer's A customer may open a numbered account for reasons of confidentiality. However, the registered representative should open the account only if the customer signs a written statement acknowledging the fact that the account is the customer's. This must be kept on file at the brokerage firm.
Under industry rules, the final approval to open a new account is given by a(n): A) Registered representative B) Operations manager C) Partner or principal D) Supervisor
C) Partner or principal Final approval must be given by a partner or principal of the firm. Not every supervisor is a principal and only a principal can approve a customer account.
The written supervisory procedures (WSP) manual of a broker-dealer would NOT include the: A) Nature of a firm's business activities B) Responsibilities of all supervisors C) Procedures that must be followed in the event of a catastrophic business disruption D) Identity of those responsible for implementing the procedures
C) Procedures that must be followed in the event of a catastrophic business disruption The WSP manual includes the policies and procedures governing all aspects of a firm's business as well as identifying those responsible for implementing the procedures. The procedures that must be followed in the event of an emergency or significant business disruption are included in the firm's Business Continuity Plan.
Lyle, Molly, and Seena have a joint account registered as Tenants in Common. In the event that Seena dies, which of the following statements is TRUE? A) The account would be liquidated as soon as the brokerage firm learns of Seena's death B) Lyle and Molly must change the arrangement to a Joint Tenants with Right of Survivorship C) Seena's estate has a claim on her portion of the account's assets D) Seena's share of the assets in the account are automatically transferred to Lyle and Molly
C) Seena's estate has a claim on her portion of the account's assets Upon learning of Seena's death, the brokerage firm will freeze the account. Seena's executor will then provide documentation to establish authority to act on behalf of the estate. Typically, Seena's estate will become the third joint owner in the existing Tenants in Common arrangement.
A registered representative (RR) wants to open a new account for a client who is a resident of Mexico. Which of the following statements is TRUE? A) Customer verification of the client's personal information is not required if the customer was referred by an existing client. B) Customer verification of the client's personal information is required if the name is on the Office of Foreign Assets Control (OFAC) list. C) The client can have either a taxpayer identification number or a passport number and country of origin. D) The client must have a taxpayer identification number to open the account.
C) The client can have either a taxpayer identification number or a passport number and country of origin. If a non-U.S. citizen wants to open a new account, the member firm is required to obtain certain information as part of its anti-money laundering (AML) procedures under its customer identification program (CIP). For non-U.S. citizens, the firm must obtain the client's name, address, date of birth, and one of the following: passport and country of issuance, taxpayer identification number, or any other government-issued document with a photograph. An RR would always need to verify the client's personal information regardless of whether the customer was referred by an existing client. An account should not be opened if the person's name is on the OFAC list.
Which of the following statements is TRUE concerning a customer who would like to transfer an account held by a broker-dealer? A) The customer is required to use the Automated Customer Account Transfer Service (ACATS). B) The customer is required to use the Automated Clearing House (ACH). C) The customer is not required to use ACATS. D) An account may only be transferred if the registered representative servicing the customer's account changes broker-dealers.
C) The customer is not required to use ACATS. If a customer wants to transfer his account to another member firm, the system used by most broker-dealers is known as ACATS, which is a service offered by the National Securities Clearing Corporation (NSCC). A customer is not required to use this system and is permitted to provide the carrying firm with alternative instructions.
A customer wants to open a cash account. What information is NOT required on the new account form? A) The name of the registered representative responsible for the account B) Whether the customer is of legal age C) The customer's signature D) The branch manager's approval
C) The customer's signature The name of the registered representative and the signature (approval) of the branch office manager must always be included on a new account form. The customer's signature is required for a margin account but not for a cash account. The registered representative must determine whether the customer is of legal age.
A Form 3 must be filed: A) Within two business days of becoming a director B) Within two business days of the date on which a director buys or sells securities C) Within 10 days of becoming a director D) Within 10 days of the date on which a director buys or sells securities
C) Within 10 days of becoming a director A person must file Form 3 with the SEC within 10 days of becoming an insider. An insider is defined as any director or officer of a corporation or any person with beneficial ownership of more than 10% of issuer's equity securities. Form 4 must be filed within two business days of the date on which an insider changes his ownership position (i.e., buys or sells).
An 75-year old individual has contributed $40,000 to a qualified plan that currently has a value of $100,000. If she decides to take a lump-sum distribution of the total value, she is taxed on: A) None of the $100,000 B) $40,000 C) $60,000 D) $100,000
D) $100,000 Since contributions to a qualified plan are made in pre-tax dollars, this results in a zero cost basis (i.e., none of the funds have been taxed). As a result, when distributions are made, the entire amount is taxable as ordinary income.
After opening an account with a firm a customer must receive an updated privacy notice: A) Semi-annually. B) Annually. C) Bi-annually. D) A privacy notice need not be provided after opening an account.
D) A privacy notice need not be provided after opening an account. According to Regulation SP, a privacy notice must be provided to a customer at the time an account is opened and annually thereafter. If this individual did not have an account with the dealer, he would be defined as a consumer and the privacy notice would have to be provided at the time any non-public (personal) information was disclosed to an unaffiliated third party.
Signatures of which tenants must be obtained when opening a joint account? A) Only one, the tenant with authority to trade in the account. B) Only one, the tenant with the greatest percent interest in the account. C) All tenants, but only one has authority to trade in the account. D) All tenants, and all have authority to trade in the account.
D) All tenants, and all have authority to trade in the account. When opening a joint account signatures of all tenants must be obtained. In addition, all tenants have the ability to trade in the account, but if securities are liquidated the check must be payable to all tenants.
ERISA stipulates that employers with qualified plans are not permitted to exclude employees who have worked for the employer at least one year and: A) Are age 18 or older B) Are age 21 or older C) Are age 18 or older and have worked a minimum of 1,000 hours during the year D) Are age 21 or older and have worked a minimum of 1,000 hours during the year
D) Are age 21 or older and have worked a minimum of 1,000 hours during the year In order to be eligible to participate in employer-sponsored qualified retirement plans, ERISA requires that employees be age 21 or older, have worked full-time (1,000 hours minimum) during the year, and be employed for at least one year.
An individual has made pretax and post-tax contributions to an IRA. What are the tax consequences of withdrawals made by the participant after age 59 1/2? A) All withdrawals are treated as ordinary income B) All withdrawals are treated as capital gains C) All withdrawals are tax-free as long as the client has been invested for at least five years D) Earnings and pretax contributions are taxable; the post-tax contributions are a return of capital
D) Earnings and pretax contributions are taxable; the post-tax contributions are a return of capital If an individual has made post-tax and pretax contributions to a retirement plan, an exclusion ration is used to determine the amount that is considered a return of capital (cost basis, and not taxed) and the amount that is considered ordinary income (taxable). This is found by dividing the cost basis by the expected return. That percent is applied to the distribution to determine the amount that is considered as non-taxable income. The balance is taxable as ordinary income.
All of the following information should be obtained by a registered representative when opening a new account for a customer, EXCEPT the: A) Street address B) Tax identification number C) Occupation D) Education
D) Education When opening a new account for a customer, education is not required information.
A registered person of a broker-dealer has an existing account at another firm and has followed the proper procedures to open the account. The current responsibility of the registered person is to: A) Obtain her employing firm's prior written consent in order to purchase any securities in the account B) Obtain her employing firm's prior verbal consent in order to purchase any securities in the account C) Notify her clients that she has an existing account at another member firm to trade securities D) Follow her employing firm's guidelines when trading securities
D) Follow her employing firm's guidelines when trading securities Employees of broker-dealers who intend to open outside brokerage accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. Once the employee obtains her employing firm's written consent, she must follow the firm's guidelines when trading securities.
Which of the following statements is TRUE regarding a Coverdell Education Savings Account? A) The maximum contribution is $5,500 B) If the funds are not used for educational expenses, the account may be used for tax-deferred retirement savings C) Contributions must be invested conservatively D) Grandparents may make contributions for their grandchildren until the children reach the age of 18
D) Grandparents may make contributions for their grandchildren until the children reach the age of 18 A parent, grandparent, or any other person whose adjusted gross income is within certain limits may contribute a maximum of $2,000 per year to an account that is established for the benefit of a child who is under the age of 18. If the withdrawals are not used to pay for the child's education expenses, then the earnings portion of the withdrawal is subject to taxation as ordinary income plus a 10% tax penalty is assessed.
A prime brokerage account would MOST likely be established for a(n): A) Individual opening an account for a minor B) Mutual fund C) Corporation D) Hedge fund
D) Hedge fund A prime-brokerage arrangement involves a variety of services offered by a broker-dealer to an active trading firm, such as a hedge fund. Most prime brokers offer both execution and clearing services to these customers. Due to regulatory requirements, a mutual fund would not open a prime brokerage account. Mutual funds generally open an account in which a custodian bank holds securities and a broker-dealer executes the transactions.
Which of the following would be considered a fiduciary? i A trustee ii A guardian iii An administrator of an estate iv An executor of an estate A) I only B) I and II only C) I, II, and III only D) I, II, III, and IV
D) I, II, III, and IV A fiduciary is an individual or organization acting in a position of trust. All of the choices mentioned would be considered fiduciaries.
Which TWO of the following are TRUE concerning wrap accounts? I Commissions are charged on a trade by trade basis II A flat fee is charged based on assets under management III A Series 7 registration is sufficient to receive compensation IV An investment adviser representative's registration is required to receive compensation A) I and III B) I and IV C) II and III D) II and IV
D) II and IV A wrap account is one in which a client is charged a flat fee which covers all the costs of research, trading, advice, and administration. In order to be compensated from these fees an individual must be registered as an investment adviser representative. For those with Series 7 it would require passing Series 65 or Series 66.
Two sisters want to open a joint account which allows the surviving sister to receive the entire account in the event of one sister's death. Which type of account should be suggested? A) Trust account B) Joint tenants in common C) Transfer on death D) Joint tenants with right of survivorship
D) Joint tenants with right of survivorship If a joint tenants with right of survivorship account is used, all of the assets pass to the surviving owner (sister) upon the death of the other owner. In a joint account that is established as tenants in common, each owner has a percentage of ownership and, at the time of death, the decedent's interest passes to her estate. Transfer on death (TOD) is not a designation for a joint account; instead, it is the instruction to transfer ownership of an individual account to a designated beneficiary upon the death of the account holder. Although a TOD designation avoids probate, estate taxes may still be levied against the decedent's estate.
An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee: A) Must provide written notice to the employing firm of the account opening B) Must provide written notice to the employing firm of the new account and written notice to the investment company of the employment with the brokerage firm C) Is prohibited from opening the account D) May open the account without notifying either firm
D) May open the account without notifying either firm Written notification is not required when opening an account with another member firm if the transactions will be limited to redeemable investment company shares, variable contracts, or unit investment trusts.
An individual has made before- and after-tax contributions to her traditional IRA. When she begins taking distributions after age 59 1/2, they would be taxed as: A) Return as capital and not taxed B) Ordinary income C) First ordinary income and then return of capital D) Part ordinary income and part return of capital
D) Part ordinary income and part return of capital When an individual has made before- and after-tax contributions to a traditional IRA, the distributions after age 59 1/2 are considered part ordinary (and taxed), and part return of capital (cost basis and not taxed).
The major provisions of ERISA provide protection for: A) Investors in limited partnerships B) Employers against fraud by their employees C) Government employees against improper investments by their employer D) Private sector employees against improper investments by their employer
D) Private sector employees against improper investments by their employer ERISA provides private sector employers with guidelines for proper investments in employee pension plans. This provides protection for employees against improper investments by their employer. ERISA does not apply to public sector (government) plans.
If a registered representative opens an account for an investor, the registered representative would need to know all of the following information, EXCEPT: A) The investor's tax identification number B) If the investor is a U.S. citizen C) The investor's investment objectives D) The investor's educational background
D) The investor's educational background A registered representative does not need to know the customer's educational background to open an account. A reasonable attempt should be made to obtain all the other information when opening an account for a customer.
A person has had a brokerage account with an online securities trading firm, but is subsequently hired by a broker-dealer. Which of the following statements is TRUE? A) The person is not permitted to maintain the account. B) The person is only permitted to maintain the account if a principal of the employing firm provides written approval for each order prior to the order being entered. C) The person is permitted to maintain the account if his employer provides written consent within three months of being hired. D) The person is permitted to maintain the account if his employer provides written consent within 30 days of being hired.
D) The person is permitted to maintain the account if his employer provides written consent within 30 days of being hired. If an employee had opened an account prior to the time that he became associated with a broker-dealer, the account may be maintained if he obtain his employer's written consent within 30 days of the beginning of his employment. Additionally, the employee is required to provide written notification to the executing firm of his employment with another broker-dealer.
An elderly client would like to give discretionary authority to a third party. Which of the following statements is TRUE concerning the person who is granted discretion? A) She will be a co-owner of all account assets B) She must be a U.S. citizen C) The person granted discretion must be a blood relative or spouse D) The signature of the person granted discretion must be obtained
D) The signature of the person granted discretion must be obtained Under FINRA rules, if a person is granted discretion the firm is required to: Obtain the signature of each person authorized to exercise discretion in the account Record the date such discretion is granted Record the age or approximate age of the customer in connection with exempted securities other than municipals There is no requirement that the person granted discretion be a U.S. citizen or relative of the account owner. All account assets remain the sole property of the account owner.
A customer of a member firm has provided one of his relatives with power of attorney in his account. If the relative contacts the RR and requests that all confirmations on transactions in this account be sent to him, the RR: A) May not do so under any circumstances B) May do so if principal approval is obtained C) May do so without principal approval since the relative has been granted power of attorney D) May do so, but only if the account owner provides written approval
Industry rules permit a person who has power of attorney (POA) over a customer's account to receive confirmations, account statements, or any other communication if the following conditions are satisfied: The account owner provides written approval to send the communications to this person and, Duplicate copies of any communications are sent to the account owner at another address that is designated in writing by the customer
