RED - 6.7, 8.8, 17.4
529 plans
- 10k per year cab be used in tuition for k-12 (college savings pans) - college savings plans BUT not repaid may be set up in more than one state - total allowable contribution is 235K - 529k - no age limitations for contributions or distributions - no income limitations - contributions can be periodic - gift tax (16k/year) can do up to 5 years at once ==> NOT DEDUCTIBLE FEDERALLY - new beneficiary must be a close fam member
If your client has a certificate registered in his own name, to be a good delivery, the certificate must be accompanied by A) the promise that it has not been called for redemption. B) the legal opinion, unless the client is selling municipal bonds. C) a buyer's option. D) a properly executed assignment to the brokerage firm on the reverse side of the certificate.
D. If the certificate is registered in your client's name, a stock power or a properly executed assignment to the brokerage firm must appear on the reverse side of the certificate.
When a stock or bond certificate is delivered, it must be in good transferable form. If the certificate is badly mutilated, it must be authenticated. Authentication can be done by A) the issuer of the security. B) the member firm delivering the security. C) the seller of the security. D) the buyer of the security.
A. Authentication of a mutilated certificate may be done only by a party with access to certain corporate records. That would certainly be the issuer, but it could also be the transfer agent or registrar.
The Investment Company Act of 1940 prohibits a closed-end management investment company from pursuing all of these activities except A) paying dividends. B) holding more than 3% of another investment company's outstanding shares. C) taking short positions in securities. D) buying securities on margin.
A. Paying dividends is an acceptable activity of any management investment company. Indeed, most of them function as regulation investment companies where, under the conduit theory, they must pay out at least 90% of their net investment income in the form of dividends to shareholders. No registered investment company may purchase securities on margin. Closely related to that is the prohibition against selling short (which must be done in a margin account). A fund may not own more than 3% of the outstanding shares of another investment company.
The mutual fund industry is highly regulated. One of the areas regulated is that of making disclosures. An example of that is that mutual funds must provide reports to their shareholders on A) a biannual basis. B) a quarterly basis. C) a biennial basis. D) an annual basis.
A. The Investment Company Act of 1940 requires that mutual funds provide their shareholders with reports twice per year (biannually). One of the reports is the annual report with audited financial statements (also filed with the SEC), and the other is the semiannual report. Biennial reporting would be every two years.
One of your customers set up a Section 529 plan for a child of one of his neighbors and contributed to it for some years. When the child reached age 17, it was obvious that she had no plans to pursue education beyond high school and your customer decided to redesignate the account. Which of the following would be a permissible new beneficiary? A) The original beneficiary's younger sister B) One of the children of another of your customer's neighbors C) One of the donor's own grandchildren D) The winner of an informal essay contest to be held among high school-aged children in the neighborhood
A. There are few restrictions on who may be the first beneficiary of a Section 529 plan. However, if the beneficiary is redesignated, the new beneficiary must be a close family member of the first.
Gifts exceeding $100 may be given by a registered representative to A) a registered representative of another member firm. B) the registered representative's unregistered sales assistant. C) a customer of the representative. D) a treasurer for an issuer of municipal securities.
A. There are no restrictions on giving gifts to colleagues employed by the same firm—registered or not. Registration would be required to split commissions, but not for making a gift.
A customer purchases a noncallable bond at a discount in the secondary market. All of the following must be on the customer's confirmation except A) the yield to maturity. B) the rating. C) the CUSIP number. D) the capacity in which the dealer acted.
B. The rating is not a required disclosure. Committee on Uniform Securities Identification Procedures (CUSIP) numbers are used in all trade confirmations and correspondence regarding specific securities. Indicating whether the firm acted as a broker or dealer is always required and the yield to maturity would be shown. Why doesn't it say, "the lower of YTM or YTC?" Because a bond purchased at a discount will never have a lower YTC than its YTM. LO 17.d
Which of the following statements regarding Section 529 education savings plans are true? I. Contributions are considered gifts under federal law. II. Contributions are tax deductible under federal law. III. Earnings generated are taxable each year. IV. Earnings generated are tax deferred. A) I and III B) I and IV C) II and IV D) II and III
B. Under federal law, contributions made into Section 529 plans are considered gifts and are not deductible at the federal level. Furthermore, earnings generated each year are tax deferred and, on withdrawal, are tax free at the federal level—if used for qualified education expenses.
A municipal securities dealer informed XYZ municipal bond fund that it was the leading retailer of XYZ shares and that, in return, XYZ should employ the dealer in effecting more transactions for the fund's portfolio. Which of the following statements regarding the request is true? A) It is not permissible because municipal securities dealers are not allowed to execute trades for the portfolios they underwrite. B) It is permissible because MSRB rules do not cover municipal bond issuers or funds. C) It is not permissible because it violates the MSRB anti-reciprocal rule. D) It is permissible because it suggests a more reciprocal arrangement between the two parties.
C. An investment company must select a dealer to execute its portfolio transactions based on services provided. It is a violation of the anti-reciprocal rule (Municipal Securities Rulemaking Board Rule G-31) for an investment company to choose a firm to trade its portfolio based solely on sales of units or shares of the fund.
One of your customers mentions that she heard a friend say that whenever she buys stock, she has her registered representative use the DRS program. When the customer asks you for an explanation, you would reply that the DRS is A) the Dow-rating system where all listed stocks are assigned a rating based on expected future performance. B) the Direct Reporting System, where execution of transactions is reported simultaneously to the firm and the customer. C) the Direct Registration System, where the customer's name as owner is recorded in book-entry form at the issuer or its transfer agent. D) the dividend reporting service where the dates of all upcoming dividends are reported to the investor.
C. DRS stands for Direct Registration System. It is a program that began in the mid-1990s as an alternative to "street name" registration for customer securities. Like street name, DRS is based on electronic bookkeeping. In direct registration, a stock is registered in an investor's name, but the company that issued the stock (or its transfer agent) is the one that holds the security in book-entry form, instead of a broker-dealer. All the other choices are made-up distractors. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
Broker-to-broker confirmations must be sent no later than A) the regular way settlement date. B) the trade date plus two business days. C) the end of day on the date of the trade. D) the next business day.
D. Confirmations between brokers (broker-to-broker confirms) must be sent no later than the next business day following the transaction (T+1).
One of your customers does not want the risk of taking physical possession of their stock certificates. At the same time, the customer does not want them in street name. Which of the following two options would work for your customer? I. Give the broker-dealer transfer and hold instructions II. Give the broker-dealer transfer and ship instructions III. Offer the client certificate loss insurance IV. Use the direct registration system A) II and IV B) I and III C) II and III D) I and IV
D. One option is to have the securities registered into the customer's name but have the broker-dealer hold them in safekeeping. Some firms make a charge for custody, but often waive it for larger accounts. Another option is the Direct Registration System (DRS), where the ownership is recorded electronically (book-entry) in the name of the investor on the issuer's records. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
All of the following are true regarding a fail to deliver except A) the buyer may buy in the securities owed to her and charge the seller for any loss incurred. B) the broker-dealer representing the seller can also be liable for buying in the securities if the broker-dealer's customer has not made good delivery on the securities sold. C) fail to deliver occurs when the selling broker-dealer does not deliver the securities in good deliverable form. D) even though a fail to deliver has occurred and is still outstanding, FINRA mandates that the seller still be paid.
D. The seller cannot be paid as long as the fail to deliver exists. Fail to deliver occurs when the selling broker-dealer does not deliver the securities in good deliverable form. The buyer or the selling broker-dealer can buy in the securities to complete the transaction, and any loss incurred to do so will become the responsibility of the seller who failed to deliver.
All of the following statements regarding Section 529 plans are true except A) states impose very high overall contribution limits. B) the assets in the account are controlled by the account owner, not the child. C) contributions to a 529 plan may be subject to gift taxation. D) the income level of the contributor can affect the annual contribution amount.
D. Unlike Coverdell ESAs, the income level of the contributor will not affect annual contributions under a Section 529 plan.
529 prepaid tuition plan
being concerned about inflation and not comfortable with market risk, investing in a 529 prepaid tuition plan enables them to purchase tomorrow's tuition at today's prices.
Coverdell ESA
can only accept $2,000 per child, per year,
Reclamation
literally means to reclaim or take back. It works for either party to the trade—the buyer or the seller when, after delivery has been made, it is determined that something is incorrect. Reclamation differs from rejection in that rejection occurs at the time of delivery, not afterward. LO 17.d
