Customer Accounts: Account Basics
A customer wishes to open a new account, but refuses to give his or her social security number and date of birth, claiming that the release of such information would allow the customer's identity to be stolen. Which statement is TRUE? A. As long as the customer signs a statement to the effect that he or she is the true account owner, then the account can be opened B. The account can be opened as long as the firm is able to verify the customer's identity C. The account can be opened as long as the manager approves D. The account cannot be opened
The account cannot be opened There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the customer's identity - either by matching this information to a government issued identification such as a driver's license or passport; or by using a database service that allows computer matching of this information. If the customer does not give this information, then the account cannot be opened.
A new customer has come into your firm to open an account. He tells you that he has recently inherited some money that he wants to invest. When completing the new account profile with the client, when you ask him for his address, he tells you that he was recently evicted, is staying at a hotel, and has no current address until he locates a new apartment. Which statement is BEST about this situation? A. The address to be used for Customer Identification purposes is the client's last known residence address B. The address to be used for Customer Identification purposes is the address of a close relative C. The address to be used for Customer Identification purposes is a P.O. Box D. The address to be used for Customer Identification purposes is the address of the hotel
The address to be used for Customer Identification purposes is the address of a close relative One of the critical pieces of information that must be obtained at account opening is the customer's address - either residence or business street address. Also acceptable is the residence or business address of a next of kin. For example, maybe this is a person recently graduated from college who was sharing an apartment, and he and his apartment-mates were evicted for being too rowdy. You could use the address of his parents and when he finds a new apartment, update the account profile for the new address. A P.O. box is not acceptable; nor is a hotel address acceptable.
Which statement is TRUE about making a recommendation to an elderly customer under the "Senior Citizen Rule?" A. Recommendations of specific designated securities that lack liquidity or that have withdrawal penalties are prohibited B. The customer must fully understand the benefits, risks and costs of the recommended product C. The firm has an obligation to shield the customer from risks that the customer wishes to take D. Recommendations to senior citizens are only permitted by registered representatives that qualify as "Certified Senior Advisers"
The customer must fully understand the benefits, risks and costs of the recommended product FINRA states that member firms do not have an obligation to shield their senior citizen customers from risks that they want to take, but the customer must fully understand the product being recommended. This must include a fair and balanced picture of the risks, costs, and benefits associated with the recommended product or transaction.
A customer who has previously placed an order calls back and cancels. This representative informs the customer that the order has already been filled. Which statements are TRUE? I. The order is binding on the customer II. the order is not binding on the customer III. the order can be canceled by the customer IV. the order cannot be canceled by the customer
The order is binding on the customer the order cannot be canceled by the customer
A registered representative is soliciting a customer to purchase a security that has just been placed on his firm's "recommended" list, and which the representative feels is suitable for that customer. After discussing the recommendation, the customer is still resisting making a purchase. Which action by the registered representative is appropriate? A. The registered representative should have the branch manager contact the customer to discuss the recommendation B. The registered representative should continue to attempt to overcome the customer's objections C. The registered representative should discuss the recommendation with anyone else who has signing authority on the account D. The registered representative should accede to the customer's wishes
The registered representative should accede to the customer's wishes Since the registered representative has discussed the recommendation fully with the customer; and the customer is not interested; the registered representative should not "bully" the customer into making a purchase. This is common sense. Over-aggressive sales practices ultimately result in discontented customers who tend to file arbitration claims!
A representative meets a potential client at a convention. The client is interested in an investment giving life-long income, and the representative recommends a variable annuity contract. The customer opens an account and completes the purchase, but 30 days later, the customer calls the representative, telling him that he is not happy and he wants to move to another firm. What action should the representative take? A. The representative should recommend another variable annuity to the client that better meets the customer's needs B. The representative should file a SAR report about the customer C. The representative should talk to the manager to determine if there was a Know Your Customer violation D. The representative should offer the customer a full refund of his investment
The representative should talk to the manager to determine if there was a Know Your Customer violation This question is judgmental, but this was a new client that was met at a convention. The client made an investment, and then 30 days later, wants it moved to another firm because he is "not happy." Before an account is opened for a client, the representative is supposed to go through extensive fact-finding to determine that the variable annuity recommended is suitable for the client. Since this client is "not happy" 30 days later with the investment, it appears that the KYC (Know Your Customer) rule was not followed. The situation should be discussed with the manager.
A customer wishes to a buy a municipal bond that the registered representative feels is unsuitable for that customer. After explaining this, the registered representative is told by the customer "Just do the trade; let me worry about it." Which statement is TRUE under MSRB rules? A. The trade must be refused B. The trade must be accepted as given C. The matter must be submitted to industry arbitration D. The trade must be approved in advance by the municipal principal
The trade must be accepted as given If a customer directs that a specific trade be done, then "Do It!" However, the registered representative should note his exception on both the order ticket and in the customer's account file. Many firms will also tape record the customer authorizing such a transaction as evidence if things go bad. There is no requirement for prior approval of the municipal principal in such a transaction.
Two business partners open a joint account at a broker-dealer as Tenants in Common, with each one owning 50% of the account. If one of the business partners dies, what claim, if any does his wife have on the account? A. The wife will be the beneficiary of the deceased owner's 50% interest in the account B. The wife will be the beneficiary of the deceased owner's 50% interest if he bequeathed it to her in his will C. The wife will be the beneficiary of the deceased owner's 50% interest only if the other business partner in the joint account disclaims his interest D. The wife will not be the beneficiary of the deceased owner's 50% interest, since the account must be closed upon death one of the owners
The wife will be the beneficiary of the deceased owner's 50% interest if he bequeathed it to her in his will When one party dies in a Tenants in Common account, his or her ownership interest in the account goes into his or her estate and is passed by will. If the customer dies, the wife will get the 50% ownership interest only if the husband bequeathed it to her in his will.
All of the following paperwork is customarily needed to open a margin account EXCEPT: A. Customer's agreement B. Loan consent agreement C. Credit agreement D. Trading authorization
Trading authorization To open a margin account, the customer must sign a margin agreement (also known as the customer's agreement), which pledges the securities in the account as collateral for the margin loan. The credit agreement explains how interest is charged on the loan. The loan consent agreement permits the broker to lend out the customer's securities for short selling by other customers of the firm. These three documents are needed to open the account. A third party trading authorization is signed by the customer only if he or she wishes to allow someone else to trade the account.
A husband and wife have a joint account with a member firm. The wife calls the registered representative with instructions to liquidate their 500 share position of ABC stock. The registered representative should: A. accept and execute the order as given B. execute the order only after the branch manager approves C. execute the order only after the husband approves orally D. execute the order only after the husband approves in writing
accept and execute the order as given In a joint account, any one of the owners can enter trades in the account. In addition, any one of the owners can authorize that checks be drawn on the account, however all checks must be drawn to full account name.
A customer wishes to give a gift of securities to her nephew under the Uniform Gifts to Minors Act. When the minor reaches legal age in that state, the: a. custodian can continue in that capacity with the express permission of that minor b. account must be transferred into the name of that minor c. account must be liquidated and the proceeds paid to the new adult d. custodian must pay the minor the highest market value that the account has had over its life
account must be transferred into the name of that minor
Which of the following is NOT personal information related to a customer account? a. information received from a credit rating agency about that customer b. data mined from that customer's activities on the member firm's website c. aggregated information about activities in all customer accounts at that broker-dealer d. data mined from that customer's activities on web sites linked to member firm's website
aggregated information about activities in all customer accounts at that broker-dealer
Under FINRA rules, fixed fee accounts should be reviewed for appropriateness for customers at a minimum: a. monthly b. quarterly c. semi-annually d. annually
annually
An existing customer must be notified about SIPC and where SIPC can be contacted: A. if the customer makes a written complaint to the broker-dealer B. on each trade confirmation C. on each statement D. annually by the member firm
annually by the member firm At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure), through which the customer can obtain a copy of the SIPC brochure. In addition, this information must be provided to the customer annually thereafter.
A customer that wishes to open a new account is asked by the registered rep for a government issued photo identification. The customer gives the rep a copy of his driver's license, which the rep notes has expired three months ago. Which statement is true? a. because the identification was government issued, it can be used to verify the customer's identity b. as long as the identification has not expired more than 6 months ago, it can be used to verify the customer's identity c. as long as another non-documentary method is used to verify the customer's identity, the account can be opened d. the account cannot be opened unless the customer renews his or her driver's license and presents it to the member firm
as long as another non-documentary method is used to verify the customer's identity, the account can be opened
To open an options account, the customer must be sent the Options Disclosure Document: a. 15 days prior to opening the account b. 5 days prior to opening the account c. at or prior to opening the account d. 15 days after opening the account
at or prior to opening the account
The requirement for independent verification of a customer's identity when opening an account CANNOT be satisfied by examining a copy of the customer's: A. birth certificate B. driver's license C. passport D. military ID
birth certificate There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the customer's identity - either by matching this information to a government issued identification such as a driver's license or passport; or by using a database service that allows computer matching of this information. A birth certificate does not have the required information needed for matching.
Which of the following customer actions could be an indicator of money laundering? a. depositing $50,000 of registered stock into the account and directing that it be transferred into street name b. buying a security in advance of the ex date and selling it after the record date in order to receive a cash dividend c. buying and selling the same security over a short period of time, incurring significant commission costs d. buying a security and selling short an equivalent convertible security to lock in a price difference
buying and selling the same security over a short period of time, incurring significant commission costs
What is the best way to ensure that a broker-dealer has an effective AML program? a. by providing AML training to the reps in each office b. by making sure that SAR and CTR reports are filed in a timely fashion c. by following know your customer procedures that are risk based d. by arranging for another member firm to review taht firm's AML procedures
by following know your customer procedures that are risk based
Deposits of which TWO of the following by a customer could be indicators of potential money laundering? I. cash II. checks drawn on US banks III. money orders IV. wire transfers from US banks
cash money orders
An account is opened "joint tenants with rights of survivorship." All of the following statements are true EXCEPT: a. orders may be given by either party b. mail can be sent to either party c. in the event of death, the other party assumes full ownership of the account d. checks can be drawn in the name of either party
checks can be drawn in the name of either party
An elderly customer normally comes into your branch office each week on Monday to discuss his account and place trades. This week, he comes in on Wednesday, looking confused and disoriented. However, the trade that he wishes to place conforms to his normal investment practice. The representative should: A. place the trade for the customer, since it conforms with his normal investment practice B. contact the firm's compliance department for guidance on how to handle the situation C. contact the customer's next of kin to discuss the situation D. refuse the order from the customer
contact the firm's compliance department for guidance on how to handle the situation
Under FINRA rules, all of the following are necessary to open a corporate account EXCEPT: a. corporate resolutions b. corporate seal c. corporate charter d. corporate minutes
corporate minutes
Additional supporting documentation is needed to open all of the following customer accounts EXCEPT a: a. Trust account b. guardian account c. custodian account d. corporate account
custodian account
Which of the following information is NOT required to be verified with the customer every 36 months? a. customer investment objective b. customer address c. net worth d. date of birth
date of birth
In order to open a new account for an individual customer, which information is required on the new account form? I. date of birth II. date of reaching legal maturity III. social security number IV. telephone number
date of birth social security number
To open an options account, inquiry must be made into the customer's financial situation and needs in order to do all of the following EXCEPT to: A. determine the restrictions, if any, to be placed in the Options Agreement B. determine whether the customer should receive an Options Disclosure Document C. determine if it is appropriate to open the account D. make suitable customer recommendations
determine whether the customer should receive an Options Disclosure Document The Options Disclosure Document and Options Agreement are mandatory parts of the option account opening procedure. Inquiry into the customer's financial situation is not made to determine whether the customer gets these. It is made to determine whether the account should be opened and what to recommend.
In order to recommend a fee based account to a customer, under FINRA rules, the customer must be provided with a(n): a. disclosure document, at or prior to, account opening b. disclosure document within 15 days of account opening c. investment adviser brochure, at or prior to, account opening d. investment adviser brochure within 15 days of account opening
disclosure document, at or prior to, account opening
The MSRB requires that if an employee of another municipal broker-dealer wishes to open an account at your firm: a. duplicate copies of each confirmation must be sent to the employer b. duplicate copies of each confirmation must be sent to the MSRB c. the employer must approve each trade before execution d. the municipal principal must approve each trade before execution
duplicate copies of each confirmation must be sent to the employer
Regarding arbitration agreements between member firms and customers: I. FINRA requires each customer to sign an arbitration agreement as part of the account opening process II. each member firm can require each customer to sign an arbitration agreement as part of the account opening process III. each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 10 days of account opening IV. each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 30 days of account opening
each member firm can require each customer to sign an arbitration agreement as part of the account opening process each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 30 days of account opening FINRA does not require arbitration agreements between customers and member firms. However, each member firm can require this (and usually does). FINRA does require that if a customer signs an arbitration agreement as part of the account opening process, then the customer must be sent a separate "stand alone" copy of the agreement and must sign an acknowledgement of receipt within 30 days of account opening.
To open a joint account for a husband and wife, the social security number to be used for IRS reporting purposes is: A. the husband's social security number B. the wife's social security number C. both the husband' and wife's social security number D. either the husband's or wife's social security number
either the husband's or wife's social security number The Internal Revenue Service requires that income from each brokerage account be reported on a Form 1099 under 1 social security number (the IRS can't handle more than 1!) In a joint account, the participants decide under whose number the report will be filed. Please note that the New Account Form generally requires the social security number of each account owner; however, reporting to the IRS is done only under one of these numbers.
Which TWO of teh following customer activities are indicators of potential money laundering? I. excessive journal entry transactions between related accounts II. excessive journal entry transactions between unrelated accounts III. lack of concern regarding risks and commissions IV. excessive concern regarding risks and commissions
excessive journal entry transactions between unrelated accounts lack of concern regarding risks and commissions
A customer directs a registered representative to execute a trade which the representative believes is unsuitable for the customer. After explaining this, the customer directs the trade to be preformed. The representative should: a. refuse the order b. obtain the manager's written approval before entering the order c. execute the order, but note his exception in the customer account files d. close the account
execute the order, but note his exception in the customer account files
When comparing fixed fee accounts to wrap accounts: I. fixed fee accounts generally only cover transaction costs II. fixed fee accounts generally cover transaction costs, asset allocation, and portfolio management III. wrap account generally only cover transaction costs IV. wrap accounts generally cover transaction costs, asset allocation, and portfolio management
fixed fee accounts generally only cover transaction costs wrap accounts generally cover transaction costs, asset allocation, and portfolio management
All of the following should be considered when determining the suitability of a municipal bond recommendation EXCEPT the customer's: A. state of permanent residence B. tax bracket C. financial background D. formal education level
formal education level The customer's education level is of no relevance in making a securities recommendation (people can be educated smart, and people can be street smart as well!) State of residence is important for a municipal bond recommendation, since if the purchaser is a resident of the issuing state, then the state exempts that issue from state and local tax (in addition to the Federal tax exemption). Tax bracket is important because municipal yields are lower than those of taxable investments; and the customer's tax bracket must be high enough to justify this type of investment. Financial background information such as income, net worth, and other investments, is needed to recommend the right type of municipal bond to the customer.
The approval to open a new margin account is given by the: A. customer B. registered representative C. general principal D. margin department of the firm
general principal All new customer accounts must be approved by a Branch Office Manager (Series 9/10 license) or General Securities Principal (Series 24 license). If the account will trade options, the approval of a Registered Options Principal (Series 4 license) is needed. If the account will trade municipal securities exclusively, approval can be performed by either a Municipal Principal (Series 53 license) or a General Securities Principal (Series 24 license).
An officer of a trust wishes to open a margin account with your firm. This is allowed: a. if the trust agreement specifically authorizes the opening of a margin account b. as long as the new account form has been properly completed c. if an officer of the trust provides a letter of guarantee d. only with the prior approval of the brand manager
if the trust agreement specifically authorizes the opening of a margin account
The purpose of OFAC (Office of Foreign Assets Control) is to: a. set higher margin requirements for foreign nationals that wish to invest in the US b. monitor that activities of foreign investors in the US markers c. impose economic sanctions against hostile foreign countries and groups d. monitor foreign currency inflows into the US markets
impose economic sanctions against hostile foreign countries and groups
Special documentation is required if a customer wishes to open all of the following accounts EXCEPT a(n): a. options account b. pattern day trading account c. margin account d. individual account
individual account
Under FINRA rules, "suitability" means that: A. securities that are delivered on settlement are in "good" form B. investment recommendations made to a customer are appropriate for that investor C. new accounts that are opened at the firm are of a similar nature to existing accounts D. registered representatives hired by the firm have passed all appropriate licensing examinations
investment recommendations made to a customer are appropriate for that investor "Suitability" means that securities which are recommended to a customer are appropriate for that customer.
A durable power of attorney sign by a customer: I. remains in force upon the death of the customer II. is terminated upon the death of the customer III. remains in force upon the mental incapacitation of the customer IV. is terminated upon the mental incapacitation of the customer
is terminated upon the death of the customer remains in force upon the mental incapacitation of the customer
Two brothers wish to open an account to trade stocks, with one brother depositing $100,000, and the other brother depositing $200,000. When opening the account, the brothers specify that they want their respective interests to go to their beneficiaries if they should die. The account should be opened as a(n) A. individual account in the name of the larger contributor; with trading authorization granted to the smaller contributor B. joint account with rights of survivorship C. joint account with tenancy in common D. partnership account requiring a signed copy of the partnership agreement
joint account with tenancy in common In a joint account with tenancy in common, each owner has a divided interest in the account. A specific percentage ownership is assigned to each participant. In this case, the brother contributing $100,000 out of $300,000 total will have a 1/3 interest, while the other brother contributing $200,000 out of $300,000 total will have a 2/3 interest. With tenancy in common, if one party should die, that person's interest goes to his beneficiary or estate. Thus, this form of ownership meets the brothers' wishes. A joint tenants with rights of survivorship account is not appropriate since each party owns an undivided interest in this account. If one person dies, the other party wholly owns that account.
Under the Know Your Customer Rule, in order to open and maintain a customer account, each registered representative must: I. know "every" fact concerning the customer II. know "every essential fact" concerning the customer III. follow KYC procedures as part of an effective Anti-Money Laundering (AML) Program IV. follow KYC procedures as part of an effective Customer Privacy program
know "every essential fact" concerning the customer follow KYC procedures as part of an effective Anti-Money Laundering (AML) Program
Upon notification of the death of a customer, the registered rep should do all of the following EXCEPT: a. note the date of death on the account b. cancel all open orders in the account c. freeze all security positions on the account d. liquidate all security positions in the account
liquidate all security positions in the account
To open an options account, inquiry must be made into the customer's financial situation and needs in order to: I. make suitable customer recommendations II. determine if it is appropriate to open the account III. determine whether the customer should receive an Options Disclosure Document IV. determine the restrictions, if any, to be placed in the options agreement
make suitable customer recommendations determine if it is appropriate to open the account determine the restrictions, if any, to be placed in the options agreement
An individual customer places an order with a broker at 12:30 PM ET to "buy 10,000 shares of ABC stock whenever you think the time is best." This order: I. must be entered immediately by the rep as a "market-not held" order II. should be entered by the rep at the moment that he or she thinks is appropriate for getting the best execution III. must be filled by the close of the market on that trading day IV. must be filled by 12:30 PM ET on the following trading day
must be entered immediately by the rep as a "market-not held" order must be filled by the close of the market on that trading day
If a tenant in a joint account dies, the decedent's share is excluded from the taxable estate for accounts held as: A. Joint Tenants with Rights of Survivorship only B. Tenants in Common only C. both Joint Tenants with Rights of Survivorship and Tenants in Common D. neither Joint Tenants with Rights of Survivorship and Tenants in Common
neither Joint Tenants with Rights of Survivorship and Tenants in Common If a joint account owned as "Tenancy In Common," then if one person dies, that person's share goes into his estate, and is subject to estate tax. Even though a "Joint Tenancy with Rights of Survivorship" gives each owner a legally undivided interest in an account, if one owner dies, the IRS assigns a portion of the account to that person and taxes it (nothing is so certain in life as death and taxes!) If the owners are married, then the unlimited marital exclusion stops the tax bill from hitting until the second spouse dies.
All of the following documents are unique to margin accounts EXCEPT the: A. new account form B. margin agreement C. loan consent agreement D. credit disclosure statement
new account form A new account form must be completed whether an account is set up as a cash or a margin account. The paperwork that is unique to opening margin accounts includes the margin agreement, which the customer must sign, pledging the securities in the account as collateral for the margin loan; the loan consent agreement, which is customarily signed, where the customer permits the securities in the account to be lent out for short sales by others; and the credit disclosure statement, which explains how the loan balance is computed and interest is charged.
A registered representative has been prospecting for new customers in neighboring states, and has contacted an individual who wishes to open an account with a $25,000 stock purchase. The customer is located 500 miles away from the representative's branch office. In order to open the account: A. the customer must physically appear at the registered representative's branch office with government issued identification documents such as a passport or driver's license B. the registered representative must visit the customer's residence and obtain a copy of government issued identification documents such as a passport or driver's license C. no physical contact is required between the customer and the registered representative, but the branch manager must speak to the customer prior to account opening and verify the account information provided by the customer D. no physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customer's identity by comparing information provided by the customer to a public database
no physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customer's identity by comparing information provided by the customer to a public database To open an account for a new customer, 4 critical pieces of information must be obtained before the account can be opened - customer name, mailing address, social security number, and birthdate. This information must be used to independently verify the customer's identity within a reasonable time after account opening. This verification can be done by matching the 4 critical pieces of information to a valid government issued identification (which cannot be expired); or by using a database service such as Equifax to do the matching. Thus, there is no need for physical contact with the customer to open the account.
SEC regulation SP covers: a. notification to customers of a member firm's privacy policies and practices b. selective disclosure of material non-public information by issuers c. standardization of disclosure of financial and non-financial information by issuers d. registration filings with the SEC by small business issuers
notification to customers of a member firm's privacy policies and practices
In order to open a new account for a customer, the customer's name, date of birth, address and tax identification must be: I. obtained prior to account opening II. obtained within a reasonable time before or after account opening III. independently verified prior to account opening IV. independently verified within a reasonable time after account opening
obtained prior to account opening independently verified within a reasonable time after account opening
In order to open a new account for a customer, the customer's name, date of birth, address and tax identification number must be: I. obtained prior to account opening II. obtained within a reasonable time before or after account opening III. independently verified prior to account opening IV. independently verified within a reasonable time before or after account opening
obtained prior to account opening independently verified within a reasonable time before or after account opening To open an account for a new customer, 4 critical pieces of information must be obtained before the account can be opened - customer name, mailing address, social security number, and birthdate. This information must be used to independently verify the customer's identity within a reasonable time after account opening. This verification can be done by matching the 4 critical pieces of information to a valid government issued identification (which cannot be expired); or by using a database service such as Equifax to do the matching.
A customer wishes to give a gift of securities to her nephew under the Uniform Gifts to Minors Act. The registration on a custodian account is: a. one custodian agreement for one minor b. up to two custodians for one minor c. one custodian for up to two minors d. any number of custodians for any number of minors
one custodian agreement for one minor
After opening an options account, 15 days have passed and the customer has not returned the signed options agreement. The proper procedure is to: A. refuse all further trades in the account B. freeze the account for 90 days C. only accept orders for opening transactions D. only accept orders for closing transactions
only accept orders for closing transactions If the customer does not return the signed options agreement within 15 days' of account opening, no new positions can be initiated in the account. Orders can be accepted only to close out existing positions. There is no requirement to liquidate the account, nor to freeze the account.
A married couple opens a joint margin account. The brokerage firm will send the Internal Revenue Service Form 1099 (Report of Interest and Dividends Earned) to the: A. husband only B. wife only C. husband on one report; and the wife on another report D. person whose social security number was given on the account form
person whose social security number was given on the account form Form 1099s (Reports of Interest and Dividends Earned) are sent to the customer whose social security number appears on the account. If it is a joint account, then the parties to the account must decide which 1 person's social security number will be used. The Form 1099 is sent to that 1 party in the account. It is up to the joint owners to allocate the proper share of income as shown on that report onto their personal tax returns.
Which of the following are TRUE statements about discretionary accounts? I. power of attorney must be obtained in writing from the customer before discretion can be exercised II. each order ticket must be marked as "discretionary" III. each order ticket must be approved by the principal prior to entry IV. the power of attorney must be renewed annually with the customer
power of attorney must be obtained in writing from the customer before discretion can be exercised each order ticket must be marked as "discretionary"
Under FINRA rules, a written power of attorney is NOT required for a registered representative to choose which of the following order related items? I. security to be traded II. size of the order III. price of execution IV. time of execution
price of execution time of execution
Assets in a customer account may be subject to a delay in transfer to another brokerage firm is they are held in: a. the name of that customer b. street name at DTCC c. proprietary products at that broker-dealer d. non-proprietary products at that broker-dealer
proprietary products at that broker-dealer
The FINRA suitability rule requires all of the following EXCEPT: a. reasonable basis suitability b. customer-specific suitability c. quantitative suitability d. qualitative suitability
qualitative suitability
Prior to opening an options account, all of the following steps must be taken EXCEPT: A. completing the new account form B. delivering the options disclosure document to the customer C. receiving the signed options agreement from the customer D. approving the first transaction in the account
receiving the signed options agreement from the customer The customer has 15 days after the account is opened to sign and return the options agreement. All of the other steps must be completed prior to opening the account - the new account form must be completed; the customer must be delivered an Options Disclosure Document (ODD); and the first transaction (as well as the account itself) must be approved in writing by the Registered Options Principal.
The requirements for broker-dealers to disclose their privacy policies to customers, and to permit customers to "opt-out" of having their information disclosed to their information disclosed to third parties, is outlined under SEC: a. regulation SB b. regulation FD c. regulation SK d. regulation SP
regulation SP
Stock held in the custodian account is the subject of a rights offering. Which of the following actions by the custodian are appropriate? I. selling the rights and reinvesting proceeds II. donating the funds required to exercise the rights III. selling another security in the account and using the proceeds to exercise the rights IV. letting the rights expire unexercised
selling the rights and reinvesting proceeds donating the funds required to exercise the rights selling another security in the account and using the proceeds to exercise the rights
Which of the following is a potential money laundering activity? a. laddering b. structuring c. diversifying d. amortizing
structuring
A customer wishes to transfer his margin account at another firm to your firm. Which statements are TRUE? I. the customer must list his positions on an account transfer form, which is sent to the carrying firm for verification II. the carrying firm must verify in 1 business day and deliver in the next 3 business days III. the carrying firm must sell immediately any open positions which have not been fully paid by the customer IV. the carrying firm must obtain physical possession of any customer positions "failed to receive"
the customer must list his positions on an account transfer form, which is sent to the carrying firm for verification the carrying firm must verify in 1 business day and deliver in the next 3 business days the carrying firm must obtain physical possession of any customer positions "failed to receive"
Under the rules of the Options Exchanges, if there is a material change in a customer's financial condition: A. the account must be restricted from options trading until the effect of the change is ascertained B. the customer new account form must be updated and the options agreement must be amended to reflect the change C. the customer can only place closing orders in the account; opening transactions are prohibited D. no special procedures need be followed
the customer new account form must be updated and the options agreement must be amended to reflect the change The rules of the options exchanges require that if a customer's financial condition changes materially, the options agreement signed by that customer must be amended to reflect the change. A revised options agreement must be sent to the customer, for his or her signature and returned within 15 days. At the same time, customer account information would also be updated.
Which procedure is NOT required in order to open a new account for an individual customer? a. the member firm must independently verify the customer's identity by matching customer provided information against government issued documents or a database b. the member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity c. the member firm must check the customer name against a government watch list or known or suspected terrorists d. the member firm must give notice to the customer that it will be requesting information to help fight funding for terrorism or money laundering activities
the member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity
An institutional customer says the following to his broker: "buy 100,000 shares of ABC stock whenever you think the time is best. This order is good unless I call you to cancel." Which statement is TRUE about the handling of this order? a. an executed power of attorney must be obtained from the customer prior to accepting the order b. the order must be executed by the close of the market on that trading day c. the order can be accepted as given, and can be executed at the discretion of the brokerage firm at any time or day d. this order can only be accepted if the customer places it via fax or email
the order can be accepted as given, and can be executed at the discretion of the brokerage firm at any time or day
A registered representative takes an order from a customer to buy 100 shares of SPQR stock at $40 and writes the order ticket for processing. The registered representative fails to note the execution price on the ticket. Which statement is TRUE? a. the order will be processed as a market order by default b. the order will be returned to the representative for entry of the execution price c. the order will be canceled without any further action taken d. the order will be referred to the member firm's compliance department for resolution
the order will be returned to the representative for entry of the execution price
To open a partnership account, the social security number(s) or tax identification number to be used is (are) the number(s) of: A. all the partners to the account B. the 3 largest partners to the account C. the partnership D. the broker opening the account
the partnership To open an account for any legal business entity such as a corporation, partnership or trust, the tax identification number of the entity must be used. Note that when these business entities are formed, they must apply to the IRS at that time for a tax identification number. Social security numbers are only used for accounts opened in the names of humans!
A firm holds a joint cash account for a husband and wife. The wife calls the registered representative and says "Sell 500 shares of ABC out of the account immediately and send a check for the proceeds made out to my name". The representative should inform the wife that: A. her instructions will be followed exactly B. the transaction requires approval of the husband since it is a joint account C. the trade can be performed but the check must be made out to both names on the account D. a written power of attorney must be on file to perform the trade
the trade can be performed but the check must be made out to both names on the account Any party in a joint account can enter orders. However, any checks drawn on the account must be made out to all names on the account.
Under FINRA rules, a specific reason must be cited by a customer who requests in writing that mail be held for more than: a. one month b. two months c. three months d. any length of time
three months
At the account opening stage, which of the following customer actions would NOT be an indicator of potential money laundering? a. concern regarding the firm's government reporting requirements b. difficulty describing his or her work or lack of industry knowledge c. uncertainty about his or her investment objectives and needs d. ordering transactions that are inconsistent with his or her shared objectives
uncertainty about his or her investment objectives and needs
Under SEC rules, customer account information must be verified by the member firm: I. within 15 days of account opening II. within 30 days of account opening III. every 12 months IV. every 36 months
within 30 days of account opening every 36 months
A brokerage firm offers the following four products to customers: 1. flat commission rate of $75 per equity trade that includes the services of a dedicated representative 2. Flat commission rate of $25 per equity trade without a dedicated representative 3. $1,500 per year flat fee-based account that includes unlimited trading without a dedicated representative 4. $3,000 per year flat fee-based account that includes unlimited trading with the services of a dedicated representative The best choice for a sophisticated self-directed customer that needs no guidance, and who trades 15 times per month, would be the: a. $25 trade commission b. $75 trade commission c. $1,500 annual fee d. $3,000 annual fee
$1,500 annual fee
A customer has how many days after opening an options account to sign and return the options agreement? A. 0 days B. 5 days C. 15 days D. 30 days
15 days
When opening an options account, the customer must return the signed options agreement: a. 15 days prior to opening the account b. 5 days prior to opening the account c. at or prior to opening the account d. 15 days after opening the account
15 days after opening the account
The definition of a "pattern day trader" is a person who effects at least: A. 2 day trades in a 5 business day period B. 4 day trades in a 5 business day period C. 10 day trades in a 5 business day period D. 20 day trades in a 5 business day period
4 day trades in a 5 business day period A "pattern day trader" is defined as a person who effects at least 4 day trades in a 5 business day period, with each "day trade" being a round-turn buy and sell transaction on the same day. Such day traders are subject to a higher initial margin to open an account ($25,000 instead of $2,000); and have different (and more stringent) margin requirements than that for other accounts.
To determine the suitability of recommendations made to a customer, inquiry should be made about which of the following? I. Investment objective II. Investment experience III. Existing portfolio of investments IV. Tax bracket
All of them
Under FINRA rules, a registered representative must obtain and retain which of the following information relating to the customer's account? I. Whether the customer is an officer, director, or 10% shareholder of a publicly traded company II. The customer's country of citizenship III. Whether the customer is employed by another FINRA member firm IV. Customer's financial status
All of them
Which of the following information is needed to open a new customer account? I. Customer occupation and employer II. Whether the customer is an officer or director of a publicly held company III. The customer's country of citizenship IV. The customer's birthdate
All of them
Which of the following persons require additional documentation to open an account at a FINRA/NYSE member firm? I. a registered employee of another FINRA/NYSE member firm II. An unregistered employee of another FINRA/NYSE member firm III. a registered employee of a FINRA/NASDAQ member firm IV. an unregistered employee of a FINRA/NASDAQ member firm
All of them
Which statements are TRUE regarding a customer account with "full power" third party trading authorization? I. the third party can enter orders into the account II. checks drawn on the account can be only made out to the customer, not to the third party III. upon the death of the customer, the power of attorney is revoked IV. the customer can designate that confirmations only be sent to the third party
All of them
To open an options account, inquiry must be made as to the customer's: I. Financial Status II. Marital Status III. Income IV. Liquid Net Worth
All of them To open an options account, a customer must give detailed financial disclosure. Inquiry must be made as to the customer's investment objective, investment experience, financial situation and financial needs. Inquiry must also be made about the customer's income, net worth, liquid net worth, marital status, and tax status.
Initial approval of options accounts is performed by the: I. Branch Office Manager II. General Principal III. Registered Options Principal IV. Financial and Operations Principal
Branch Office Manager Registered Options Principal Initial approval of each options account is either performed by the Branch Office Manager (Series 9/10 license - the Series 9 covers options rules) or the Series 4 Registered Options Principal. The General Principal (Series 24 license) cannot approve options accounts - there is no options content on that exam. The Financial and Operations Principal (Series 27) is for the firm's supervising accountant.
Which statement about SEC rules covering customer account information is FALSE? A. The customer must be sent a copy of the collected information for verification within 30 days of account opening B. Collected suitability information must be sent for verification, including income and net worth C. CIP (Customer Identification Procedures) information must be sent for verification, including date of birth and social security number D. The customer account profile must be resent to the customer every 36 months for reverification
CIP (Customer Identification Procedures) information must be sent for verification, including date of birth and social security number SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for reverification and updating (if needed) every 36 months thereafter. Any collected suitability information must be included, however the rule states that customer social security number and date of birth are not required to be verified to help protect the customer from potential identity theft.
Brothers Joe and John have a joint account with tenants in common. Which of the following statements are TRUE regarding the activities in the account? I. Checks drawn on the account may be made out to Joe only or John only II. Checks drawn on the account must be made out to both Joe and John jointly III. Orders may be entered into the account by Joe only or John only IV. Orders must be entered into the account by Joe and John jointly
Checks drawn on the account must be made out to both Joe and John jointly Orders may be entered into the account by Joe only or John only Any checks that are drawn on a joint account must be made out to the full name of the account - in this case checks are made out to both Joe and John. Orders in joint accounts can be entered by any single party - so Joe can enter an order or John can enter the order - they don't have to do this together.
In order to recommend a structured product to a customer, all of the following statements are true EXCEPT: A. The member firm must perform a "reasonable basis" suitability determination evaluating the characteristics of the product to be recommended against competing products B. Completion of the "reasonable basis" suitability determination means that the structured product can be recommended to all the firm's customers C. The member firm must perform a "customer specific" suitability determination prior to recommending a structured product to a customer D. The registered representative offering the product must understand the product's features and risks and be able to communicate these to the customer
Completion of the "reasonable basis" suitability determination means that the structured product can be recommended to all the firm's customers
Which of the following information is needed to open a new cash account? I. Customer name II. Customer birthdate III. Customer citizenship IV. Customer occupation
Customer name Customer birthdate Customer citizenship Customer occupation To open a new cash account, the name of the customer is needed (obviously); the customer's birthdate is needed to do a proper suitability determination. The customer's citizenship because if the customer is a not a U.S. citizen, then a copy of the customer's passport must be obtained and the customer must have a U.S. tax I.D. number. The customer's occupation is needed to see if the customer works in the financial services industry. If this is the case, then additional documentation is required to open the account.
Which of the following information is NOT required to be verified with the customer every 36 months? A. Customer investment objective B. Customer address C. Net worth D. Date of birth
Date of birth SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for verification and updating (if needed) every 36 months thereafter. The rule states that customer social security number and date of birth are not required to be verified to help protect the customer from potential identity theft.
Prior to opening an account that will engage in day trading, the customer must be provided with a: A. Preliminary Prospectus B. Trust Indenture C. Disclosure Document D. Power of Attorney
Disclosure Document Day traders take on greater risks than normal customers and are therefore subject to a more stringent suitability determination and must receive a risk disclosure document prior to account opening.
All of the following persons can approve the opening of an account under MSRB rules EXCEPT the: A. Branch Office Manager B. Municipal Securities Principal C. General Principal D. Financial and Operations Principal
Financial and Operations Principal Under MSRB rules, new accounts are approved by either a resident Branch Office Manager (Series 9/10 license); a General Securities Principal (Series 24 license) or by an individual with the MSRB's full Municipal Principal (Series 53) license. The Financial and Operations Principal (Series 27 license) is the firm's accountant, and cannot approve the opening of customer accounts.
Under the requirements of the USA PATRIOT Act, when opening an account for a non-resident alien, the registered representative must obtain which of the following from the customer? I. US Passport number II. Foreign Country passport number III. US tax identification number IV. Foreign country tax identification number
Foreign Country passport number US tax identification number
A husband and wife wish to open an account that allows either party to trade or draw checks; and that becomes the property of the surviving spouse if one should die. The proper ownership form is: A. Tenants in Common B. Joint Tenants with Rights of Survivorship C. Separate Individual accounts D. Joint Partnership account
Joint Tenants with Rights of Survivorship Any party to a joint account can enter orders for the account; and can draw checks in the full account name. In a joint account with rights of survivorship, if one participant in the account dies, the decedent's share will go directly to the other participant, avoiding probate. In a joint account with tenants in common, if one dies, his or her percentage ownership goes into the estate and is bequeathed to a beneficiary in the will.
Mr. Jones, a New York resident, is a widower with a 6 year old son. He opens an account for the son under the Uniform Gifts to Minors Act. Three years later, Mr. Jones remarries, and moves to California, a community property state. Under what conditions can Mrs. Jones enter orders into the UGMA account? a. only if a power of attorney is granted by the son b. only if a power of attorney is granted by Mr. Jones c. Mrs. Jones can enter orders without restriction because California is a community property state d. Mrs. Jones cannot enter orders into the account under any circumstances
Mrs. Jones cannot enter orders into the account under any circumstances
Under MSRB rules, if a customer refuses to disclose sufficient financial information to make a suitable recommendation, which statement is TRUE? A. No recommendations are permitted B. The representative can recommend only investment grade securities C. The representative can only accept "solicited" trades D. Only recommendations of municipal bond mutual funds are permitted
No recommendations are permitted When the customer fails to provide sufficient personal information on his financial background and investment objective, no recommendations can be made. Unsolicited transactions can still be accepted in the account.
The FINRA suitability rule requires all of the following EXCEPT: A. Before a product or strategy can be recommended, a reasonable basis suitability determination must be completed, evaluating the investment's features, returns, costs and risks B. Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless it is determined that the investment is suitable, based on that client's new account profile C. Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless the registered representative has completed a CE (Continuing Education) program on that investment D. Before a product or strategy can be recommended to a customer, it must be determined that the customer has the ability to meet the financial commitment required by the recommendation
Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless the registered representative has completed a CE (Continuing Education) program on that investment
A customer must be sent which of the following at, or prior to, opening an options account? A. Options Disclosure Document B. Options Agreement C. Loan Consent Agreement D. Chicago Board Options Exchange manual
Options Disclosure Document
Which of the following signatures must appear on the New Account Form when a customer is opening a new cash account? I. Customer II. Registered Representative III. Manager or Principal
Registered Representative Manager or Principal
When opening an account to buy options, which of the following signatures are needed on the options new account form? I. Registered options principal signature II. General principal signature III. Registered representative signature IV. Customer signature
Registered options principal signature Registered representative signature The customer's signature is not required on a new account form. It is required on the options agreement, margin agreement and loan consent agreement.
Which of the following are types of joint accounts? I. Partnership account II. Tenancy in common account III. Joint tenants with rights of survivorship account IV. Custodian account
Tenancy in common account Joint tenants with rights of survivorship account In a joint account, each owner can trade the account and can draw checks in the account's name. The joint account ownership options are Tenants in Common - each person has a divided interest; and Joint Tenancy - each person has an undivided interest. Custodian accounts are not joint accounts - the minor is not authorized to trade the account nor can he or she draw checks from the account. Only the Custodian can perform these actions. Similarly, in a partnership account, only the designated partner(s) authorized in the partnership agreement can trade the account and draw checks - each individual partner is not permitted to do so.
