CUSTOMER ACCOUNTS: OPENING PROCEDURES

Margin Agreement

"hypothecation agreement" "Customer's agreement" -customer must sign a margin agreement -pledging the securities in the account as collateral for the loan -not mandatory, the customer sign a loan consent agreement -provided with a credit disclosure statement that explains how the loan balance is computed and how interest will be charged

wrap accounts

"investment advisory products" "all-in-one" account "wraps" all account services into one account -single annual fee is charged - fee: all trades, recommendations, safekeeping of securities, asset management, etc.

Omnibus account

("all in one") -opened by the Investment Adviser -all customer monies are pooled -record of each customer's positions within the account is maintained by the Investment Adviser

Convenience Account

-"newer" type of account -designed for an elderly parent who has many adult children -needs help managing his or her finances and wants one of the children to do this - allows the elderly parent to name a person to use the funds in the account for the parent's benefit only

associated persons

-Either an officer or a registered or unregistered employee of the member firm, with an exception given to anyone who only performs clerical or ministerial duties

Corporate Resolution

-need to open a corporate account -embossed corporate seal -this states that the corporation held a meeting of the Board of Directors and authorized the opening of the account -names the individuals authorized to trade in the account

Corporate Charter

-need to open a corporate account -required to prove the corporation is a legal entity under the customer identification requirements of the PATRIOT Act

Court Order Appointing The Guardian

-need to open a guardian account - account is opened for an adult who is declared incompetent

Transfer On Death (TOD)

-type of account registration that allows the registered owner to name the person into whose name the securities will be transferred upon the death of the customer -securities are not required to be transferred into the name of the estate -retransferred to the beneficiary -after the estate clears probate

Which of the following verbal orders can be accepted from a customer without further documentation? A. "Buy 100 shares of ABC stock sometime today" B. "Invest $20,000 in bank stocks" C. "Increase my portfolio position in ABC" D. "Buy 200 shares of an auto stock"

A. "Buy 100 shares of ABC stock sometime today"

What is one of the benefits of a prime brokerage account? A. Consolidated account statement B. Consolidated trade execution C. Separated account positions D. Separated stock loans on short positions

A. Consolidated account statement

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 the minor B. account must be transferred into the name of the 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

B. account must be transferred into the name of the minor

First Party

Brokerage Firm

Which of the following can open a joint account without restriction? A. Parent and minor B. Guardian and custodian C. 3 limited partners D. Registered representative and client

C. 3 limited partners

Second Party

Customer -authorized to trade the account and draw checks on the account. -authorize someone else to trade the account and draw checks. -give a Third Party Trading Authorization -give a First Party Trading Authorization

All of the following transactions are permitted in a custodian account EXCEPT the: A. purchase of a common stock fund B. purchase of mutual fund shares C. sale of pre-emptive rights D. purchase of common stock on margin

D. purchase of common stock on margin

All of the following transactions are permitted in a custodian account EXCEPT the: A. purchase of mutual fund shares B. purchase of warrants C. sale of pre-emptive rights D. short sale of common stock

D. short sale of common stock

Third Party

can be given by the customer to anyone. -authorization must be given in writing (a written power of attorney, naming the third party authorized to trade, signed by the customer)

An individual is declared incompetent in a court proceeding. What type of account can be opened for this person with appropriate documentation? A. Cash account B. Guardianship account C. Joint account D. An account may not be opened

B. Guardianship account

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 A. I and II B. III and IV C. I, II, III D. I, II, III, IV

B. III and IV

A husband and wife wish to open an account that provides for 50% of the account assets to go to the surviving spouse upon death, with the remaining 50% going to other heirs. They should be advised to use a: A. Transfer On Death (TOD) account B. Tenants in Common account C. Joint Tenants with Rights of Survivorship account D. Community Property account

B. Tenants in Common account

An individual 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 e-mail

B. The order must be executed by the close of the market on that trading day

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

B. The wife will be the beneficiary of the deceased owner's 50% interest if he bequeathed it to her in his will

If a customer wishes to open an account for a minor without additional documentation, the account must be opened as a: A. guardian account B. cash account C. margin account D. conservator account

B. cash account

A parent opens a custodian account for a 10-year old child. The grandparents donate into the account. If the investment income in the account exceeds Internal Revenue Service guidelines, the income is taxed at the: A. minor's tax rate B. gift and estate tax rate C. grandparent's tax rate D. the highest tax rate of the minor, parent or grandparent

B. gift and estate tax rate

Shares are purchased in a custodian account, and are later sold at a profit. Tax liability rests with the: A. custodian B. minor C. minor at the age of majority D. custodian at the age of majority

B. minor

Custodian accounts opened by parents for their minor children that have substantial dividend or interest income are: A. not taxable until the child reaches the age of majority B. taxable at the parent's tax bracket C. taxable at the minor's tax bracket D. taxable at the higher of the parent's or minor's tax bracket

B. taxable at the parent's tax bracket

When comparing a "Convenience Account" to Transfer on Death (TOD) registration: A. opening a Convenience Account does not require a court order while a Transfer on Death account does B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does C. the named person in a Convenience Account has access to account funds only upon the death of the account owner, while the named person in a TOD account has access to account funds at will D. opening a Convenience Account requires a smaller minimum deposit than the opening of a Transfer on Death account

B. the named person in a Convenience Account has no ownership rights upon the owner's death, while the named person in a TOD account does

If a retail customer gives a market-not held order: A. the order is treated as a "good-til-canceled" (GTC order) B. the order is treated as a "day" order C. a written power of attorney must be on file from that customer to accept the order D. the order cannot be handled manually and must be executed via an electronic system

B. the order is treated as a "day" order

An account registration that allows the customer to name the person into whose name securities in the account will be registered upon the death of the customer is known as: A. tenancy in common B. transfer on death C. joint tenants with rights of survivorship D. successor registration

B. transfer on death

Under FINRA rules, which of the following are necessary to open a corporate account? I. New Account Form II. Corporate Charter III. Corporate Resolution with Embossed Corporate Seal IV. Evidence of Domicile A. I only B. II and III C. I, II, III D. I, II, III, IV

C. I, II, III

Which of the following are types of joint accounts? I. Tenancy by Entireties account II. Tenancy in Common account III. Joint Tenants with Rights of Survivorship account IV. partnership account A. I and IV B. II and III C. I, II, III D. I, II, III, IV

C. I, II, III

Which of the following procedures are required for discretionary accounts? I. A written power of attorney must be obtained from the customer before discretionary trades are effected II. Every discretionary order ticket must be approved promptly by the manager or principal III. Every order ticket initiated by the registered representative must be marked "discretionary" IV. The customer must be contacted before each discretionary trade is executed A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

An account is opened "joint tenants with rights of survivorship." Which of the following statements are TRUE? I. If one party to the account dies, the other party wholly owns the account II. Orders may be given by either party III. Checks can be drawn in the name of either party IV. Mail can be sent to either party A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

C. I, II, IV

In order to open a discretionary cash account, which of the following procedures are required? I. Completed Customer New Account Form II. Signed Trading Authorization III. Signed Customer's Agreement IV. Signature of Manager on New Account Form A. I and II only B. I and III only C. I, II, IV D. II, III, IV

C. I, II, IV

A durable power of attorney signed 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 A. I and III B. I and IV C. II and III D. II and IV

C. II and III

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 A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which of following documents are unique to margin accounts? I. new account form II. margin agreement III. loan consent agreement IV. credit disclosure statement A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

C. II, III, IV

An individual comes into your firm to open a cash account. When completing the new account form, the customer responds to the question "What is your age?" by stating "I am 15 years old." Which statement is TRUE? A. The account can be opened in the name of this customer without restriction B. The account can be opened in the name of the customer with the permission of the parents C. The account can be opened by an adult as custodian for this person D. The account can be opened with the brokerage firm as custodian for this person

C. The account can be opened by an adult as custodian for this person

A custodian account is established under UTMA in a State with a transfer age of 21. Legal age in the state is 18. At age 19, the beneficiary leaves college to go into business setting up a software company. The beneficiary wishes to use the assets in the UTMA account as "seed money" for the business. Which statement is TRUE? A. The beneficiary can use the account assets immediately without restriction B. The beneficiary has no access to the account assets until he or she reaches age 21 C. The beneficiary can use the account assets only with the approval of the custodian D. The beneficiary can use the assets only with the approval of the state administrator

C. The beneficiary can use the account assets only with the approval of the custodian

A wealthy customer is very satisfied with her registered representative. She approaches the representative to ask him if he would like to be appointed as trustee over a trust account that she is establishing for her 2 grandchildren. If he accepts, he would be paid a trustee fee. Which statement is TRUE about this? A. The registered representative cannot act as the trustee because he already manages another account for the customer B. The registered representative cannot act as the trustee because he cannot accept a trustee fee C. The registered representative cannot act as the trustee because of the conflict of interest D. the registered representative can act as the trustee without restriction

C. The registered representative cannot act as the trustee because of the conflict of interest

All of the following statements are true regarding joint accounts EXCEPT: A. opening a joint account requires new account information on each account participant B. if a party in a Tenancy in Common account dies, his or her share of the account is included in his taxable estate C. if a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is excluded from his taxable estate D. any party in the account can authorize trades or withdraw funds

C. if a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is excluded from his taxable est

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

C. joint account with tenancy in common

A type of brokerage account where the customer is charged a single annual fee for all account services, regardless of activity in the account, is known as a: A. fiduciary account B. active trader account C. wrap account D. omnibus account

C. wrap account

All of the following procedures are required to open an account for an employee of another municipal securities firm EXCEPT: A. Prior notice of the opening of the account must be given to the municipal employer B. Duplicate trade confirmations must be sent to the municipal employer C. Any instructions of the municipal employer must be followed D. Duplicate account statements must be sent to the municipal employer

D. Duplicate account statements must be sent to the municipal employer

If an investor wishes to open a margin account, which of the following paperwork is customarily completed? I. New Account Form II. Hypothecation Agreement III. Loan Consent Agreement IV. credit Agreement A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

D. I, II, III, IV

In a joint tenants with rights of survivorship account: I. a specific percentage ownership is assigned to each party II. each party owns an undivided interest in the account III. if one party dies, that person's interest goes to his beneficiary or estate IV. if one party dies, the other party wholly owns the account A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which of the following statements are TRUE if a customer signs a non-durable power of attorney? I. The power of attorney continues in effect if the grantor becomes mentally incompetent II. The power of attorney ceases if the grantor becomes mentally incompetent III. The power of attorney continues in effect if the grantor dies IV. The power of attorney ceases if the grantor dies A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which of the following statements are TRUE regarding joint accounts? I. If a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is excluded from his taxable estate II. If a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is included in his taxable estate III. If a party in a Tenancy in Common account dies, his or her share is excluded from his taxable estate IV. If a party in a Tenancy in Common account dies, his or her share is included in his taxable estate A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Unless specific authorization is given, all of the following accounts cannot be opened as margin accounts EXCEPT a: A. Trust Account B. Custodian Account C. Guardian Account D. Joint Tenants Account

D. Joint Tenants Account

To open a margin account for a partnership, all of the following documentation is required EXCEPT: A. New account form B. Customer's agreement C. Partnership agreement D. Joint account agreement

D. Joint account agreement

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 can not enter orders into the account under any circumstances

D. Mrs. Jones can not enter orders into the account under any circumstances

All of the following are types of joint accounts EXCEPT: A. Tenancy in Common account B. Joint Tenants with Rights of Survivorship account C. Tenants by Entireties account D. Omnibus account

D. Omnibus account

All of the following are types of fiduciary accounts EXCEPT: A. Trust Account B. Custodian Account C. Executor of Estate Account D. Partnership Account

D. Partnership Account

All of the following statements are true regarding a customer account with a "full power" third party trading authorization EXCEPT A. upon the death of the customer, the power of attorney is revoked B. the customer can designate that confirmations be sent only to the third party C. the third party can enter orders in the account D. checks drawn on the account can be made out to the customer or to the third party

D. checks drawn on the account can be made out to the customer or to the third party

All of the following are true statements about trust accounts EXCEPT: A. a copy of the trust agreement must be obtained prior to opening the account B. transactions in the account are limited to the types specified in the trust document C. margin transactions are prohibited unless specific authorization to open a margin account is given in the trust document D. securities that may be purchased in the account are restricted to those included in that state's "Legal List"

D. securities that may be purchased in the account are restricted to those included in that state's "Legal List"

Discretionary Accounts

-First Party Trading Authorization can be given by the customer to the broker. -authorizes the broker to trade the account. -writing (a written power of attorney granted by the customer) -Size and / or Security

Joint Tenants With Rights Of Survivorship (JTWROS)

-Gives each owner (each "tenant") a 100% ownership interest in the account. -one party dies, the survivor(s) in the account own(s) 100% of the account -deceased person's share avoids probate - a husband and wife "Tenants By Entireties"

Joint Accounts Type

-Joint Tenants With Rights Of Survivorship (JTWROS) -Tenancy In Common

MSRB Requirements

-Prior written notice must be given to the municipal employer -Duplicate confirmations must be sent to the municipal employer

Risk Disclosure Document

-Provided to the customer -explains that margin accounts use borrowed money ("leverage") to magnify returns in a rising market - explains that the use of leverage also magnifies losses in a falling market

Credit Agreement

-Signed by the customer -explains how the debit balance (loan amount) is computed; and how interest will be charged on the loan

Full Power of Attorney

-Third party can trade the account and can draw checks (all checks are drawn to account name only) - becomes void upon the death of the customer

Limited Power of Attorney

-Third party can trade the account but cannot draw checks -can enter orders but cannot draw checks - becomes void upon the death of the customer

Prudent Man Rule

-Third party must manage the account as would a "prudent man."

Margin Account

-account defined under Regulation T -customer buys or sells short securities by depositing cash equal to part of the securities' market value -margin requirement for such positions is 50% for both long and short stock positions

cash account

-account defined under Regulation T -investor buys securities by paying in full; or sells securities that he or she owns fully paid (a long sale of the securities)

"convenience" signer

-agent who can write checks from the account no right of survivorship parent's die = funds in the account go to the estate -no ownership rights -will not have access to the funds in the account upon the parent's death

Fiduciary accounts

-company, trust or person who holds or invests funds for someone else -acts in the best interest of the account owner. -operated by a "third party" -must be cash accounts -no margin is permitted -Cannot have third party trading authorizations TYPES: Trust Account Guardian Account Custodian Account Conservator Account Executor Account

Durable power of attorney

-continues if the customer becomes mentally incapacitated

Tax Liability

-custodian account = tax on the minor

Guardian account

-fiduciary account -court appoints a legal guardian to protect and manage the assets of a minor (such as a child that has been orphaned) or an incompetent adult.

Trust account

-fiduciary account -trustee makes investment decisions for a person in keeping with the terms specified in the trust agreement

Custodian account

-fiduciary account -opened by only one adult (the custodian) for the benefit of one minor -no special paperwork -named adult makes all of the investment decisions on behalf of the minor -Uniform Gifts to Minors Act (UGMA) -Uniform Transfers to Minors Act (UTMA) -opened by parents for their children

Tenancy In Common

-gives each owner a specified percentage ownership of the account -If one party dies, that person's percentage share goes to his or her estate - non-related persons in a joint account

prime brokerage agreement

-institutional investor can use different executing brokers for its trades -trades are settled by the "prime broker"

Numbered Account

-keep the identity of the customer secret -permitted only if a written statement of the customer attesting to ownership of the account is maintained by the member firm

prime broker

-maintains custody of the positions -provides margin financing on these positions and arranges for stock loans on short stock positions

Investment Adviser

-manages securities for customers for a fee -can open accounts for customers at brokerage firms in either of 2 ways: 1.Individual or Joint Account 2.Omnibus account

Partnership Agreement

-need to open general partnership account -signed by the general partners -paragraph authorizing the opening of the account -detailing which partners are permitted to trade the account

Trust Agreement

-needed to open a trust account -document will authorize the opening of a securities account -detail permitted investments

Custodian Account

-no special documentation is required -Uniform Gifts To Minors Act (UGMA) -Uniform Transfers to Minors Act (UTMA) -only be opened as cash accounts

limited partnership account

-only the general partner's signature is required -not the limited partner's

Individual or Joint Account

-opened by each customer(s) that gives the Investment adviser Third Party Trading Authorization

FINRA Requirements

-prior written consent of the employing member firm must be obtained -executing member must be notified in writing of the employee's association with another member firm -written request of the employer member, the executing member must provide duplicate confirmations and statements

CBOE Requirements

-prior written permission must be obtained from the employer member -Duplicate confirmations must be sent to the employer member

Non-durable power of attorney

-revoked upon the customer's mental incapacitation

Loan Consent Agreement

-signed (but not mandatory) -gives the broker the right to lend out the customer's securities on short sales

Which of the following parties of an account can give trading authorization to another party? A. A second party can give trading authorization to a first party B. A first party can give trading authorization to a second party C. A third party can give trading authorization to a second party D. A first party can give trading authorization to a third party

A. A second party can give trading authorization to a first party

Which statement is TRUE about donations into accounts opened under the Uniform Gifts to Minors Act? A. Any adult can donate into a custodian account for a minor B. Only a relative of the minor may donate into a custodian account for a minor C. Only a parent of the minor may donate into a custodian account for a minor D. Only a minor may donate into a custodian account for a minor

A. Any adult can donate into a custodian account for a minor

Which statement is TRUE about accounts opened under the Uniform Gifts to Minors Act? A. Any adult can open a custodian account for a minor B. Only a relative of the minor may open a custodian account for a minor C. Only a parent of the minor may open a custodian account for a minor D. Only a minor may open a custodian account for a minor

A. Any adult can open a custodian account for a minor

Which of the following are ways in which an Investment Adviser account can be opened? I. An omnibus account holding the monies of all clients without specific identification of each client II. Separate client accounts with a power of attorney given by each client to the investment adviser III. Joint account with tenancy in common for all of the investment adviser's clients IV. Joint account with rights of survivorship for all of the investment adviser's clients A. I and II B. II only C. III and IV D. I, II, III, IV

A. I and II

An employee of a CBOE member firm wishes to open an options account at another CBOE member firm. Which of the following statements are TRUE? I. Prior written approval must be obtained from the employer member II. Prior written approval must be obtained from the CBOE III. Duplicate confirmations must be sent to the employer member IV. Duplicate confirmations must be sent to the CBOE A. I and III B. I and IV C. II and III D. II and IV

A. I and III

An employee of a FINRA member firm wishes to open a new account at another FINRA firm. Which of the following statements are TRUE? I. Prior written consent must be obtained from the employer member II. Prior written consent must be obtained from FINRA III. Duplicate confirmations and/or statements must be made available to the employer member on written request IV. Duplicate confirmations and/or statements must be made available to FINRA on written request A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which statements are TRUE regarding a customer account with a "limited power" third party trading authorization? I. The third party can enter orders in the account II. The third party can draw checks on the account III. Upon the death of the customer, the power of attorney is revoked IV. Upon the death of the customer, the power of attorney remains in force A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following is acceptable as a custodian for a minor on an account? A. John Smith as Custodian for............ B. John and Mary Smith as Custodians for................. C. John Smith Corp. as Custodian for.............. D. John Smith Partnership as Custodian for..............

A. John Smith as Custodian for.............

An aunt wishes to open a custodian account to give a gift to her minor niece. Which statement is TRUE? A. The account can be opened without restriction B. The account can be opened only with the permission of the parents C. The account can be opened only with the permission of the niece D. The account cannot be opened

A. The account can be opened without restriction

Stock held in the custodian account is the subject of a rights offering. All of the following actions by the custodian are appropriate EXCEPT: A. letting the rights expire unexercised B. selling another security in the account and using the proceeds to exercise the rights C. donating the funds required to exercise the rights D. selling the rights and reinvesting the proceeds

A. letting the rights expire unexercised

The social security number(s) that is (are) used for Internal Revenue Service reporting in a custodian account is (are) the: A. minor's social security number B. custodian's social security number C. account has the choice of using either the minor's social security number or the custodian's social security number D. parent's social security number

A. minor's social security number

A custodian account is opened by a parent for their 12-year old daughter. Securities in the account are sold later that year for a $3,000 profit. The gain will be taxed at the bracket of the: A. parent B. minor C. minor at the age of majority D. parent at the age of majority

A. parent