Chapter 8: Customer Accounts

financial instion such as banks, insurance companies and pension plans

are generally required to invest either using a legal list or consrvativly under prudent man rule

commision based advisors

are paid to trade- this increases number of transactions they execute

prospecting new customers

build customer base is to make unsolicited telephone calls to potential customers- cold calling/telemarketing

prime brokerage acct

bundled package of services offered by b/d to hedge funds, other b/d and instional investors that use agrreeive trading staretgies including securities lending, centralize trade processing, calculating an absolute return

sole propreitorship

business owned by an indivual- simplest way of doing business- no legal filing except for doing business as

spuse may have community property

but spouse is not permitted to trade or withdraw if their name is not on acct

example of not disretionary order

buy 100 ABC when time is right --

order tickets must include

buy, sell , # of shares, security, discretionary acct or not, acct #, time order was entered, time order was executed, any terms or condisiton

corporate acct

corp which opens a securities act must provide a certifiate copy of the corp resolution and articles of incorportation and may rewuire corporate bylaws or charter- may engage in security transactions -

customer develops dementia

court order will be required for RR to take orders from a thrid party

firm making telephone soliciations must have written policy for maintianing do not call list

customer acct number must be encrypted

discretionary authority

customer grant authority to their rep to make investment decisions on their behalf = RR must obtain prior written authoirzation on a discretionary account agreement --designated that the RR is authoirzed to trade in the acct

time and price discretion orders are good for the day of entry only

customer wants an order to be good for more then a day - written instructions would be required

in commison based accts

customers are charged per transaction

firm needs to have a permant in house do not call list

for people who do not want to be called and compare this infro to national do not call list

ll transactions in customers acct

must be reviewed and itiated by princpal or supervisory person of b/d

cuatomer acct info

must be sent 30 days of the opening of the acct, must be furnished to each customer at least once every 36 months, must be updated within 30 days after reicing notice of a chnage in investment obj-- acct info must be kept for 6 years after acct is closed

if custiodian is someone other than a childs legal guardian

the guardian cannot exert any control or enter orders in the acct

confrimation must contain

reference to finra that contains public trading date and exectuion time of the transaction expressed to the second

non managed fee based acct program

refers to arrangements in which no investment advisroy services are provides by member firm and in whcih customers are charged a fixed fee/ and/or percentage of accts value rather than transaction based commissions - benefits customer who trade a lot- fees and costs must be disclosed before acct is established-

registered rep are never

ALLOWED to return a percentage of commisions earnied while executing transaction for customers

churning

RR makes transactions which are excessive in size or frequency

when power of attorny is granted

RR must know essential facts about both customer and agent that is granted the power

client fails for bankruptcy

RR should cancel all open orders to buy and sell

when trade comparsions between b/d do not match

a dont know notice is sent to confriming b/d

letter of authroization

allows for the transferring of a customer cash and/ or other securities

joint acct: joint tenants with rights of surviourship

acct for 2 or more people - usually husband and wife- upon death of either party, the surving tenant becomes the sole owner of the securities - surviving tenant needs to present death certificate and a affidavit of domicile and then securities can be regsitered to surviing tenant

indivudal accts

acct opened for one person

unform gifts to minor

allow opening of a securities act for a minor - acct involing a minor cannot be set up as a joint acct - donnor must be an aduly and can give any kind of securities or cash- no limit to gift size, donor can be custodian -does not pay capital gains taxes on donate securites, donnor cannot gift rhoguh his last will

full trading authoirzation

allow rep to make purchase and sale decisions for the account and also withdraw cash or securities from acct- approved discretionary acct does not mean that the rep has unlimited trading priviledges

member must disclose

amount of a markup charged to a customer if it is not a market maker and engages in a riskless or simultaneous transaction with customer

new acct from must contain : address

army post office or fleet post office is acceptable, if this is used the customer does not need to provide another adress, post office box is not valid address but can be used for mailing purpose, in individual does not have a residence, APO, FPO, o rbusiness address, the residence or business of a next kin or another indivudal contact may be used

exemptions from investment advisor registration are

banks, lawyers, accountants, teachers, and engineers or anyone who gives advice

customer dies the RR must

cancel all open orders, freeze acct and note client is deceased, await instruction from estate representaive, obtain death certificate, obtain an affidavit of domicile, order for exector of estate to transfer funds they must obtain an affidavit of domicle, death certificate, abide by insturction in last will and testament of deceased person

acct request made by spouses of customers

cannot accept an order or request to withdraw funds from a spouse of a customer unless the account holder provides written authorization to the RR stating that the request by the spouse is authorized

fiduciary acct

cannot grant trading authority to a 3rd party, accts may adhere to prudent investor rukes, require low risk conservative investments

fee based accounts

charged a flat dee, usually based on percentage of assets in customers acct, fee can be a one time or ongoing, depending on the types of services they provide

when doners makes a gift they should consider

completion of the transaction occurs when the securities are registered in the name of the custodian for the benfit of the minor - age pf person who the gift is for, gift is completly irrevocable,

new acct from must contain : customers name

customers name-broker cannot open an acct in the name of a person other than the customer, acct name should match document names, new accts may not be opening in name of 3rd party, an alias or a minor, numbered acct- must submit writtten statement attesting to ownership

TOD is apprortie

for an investor who wants to leave securities to a specific person but maintain control of the assets while they are alive

order tickets do not have to indicate

designated market maker who executed trade

corporate resolition

document from board and authorizes specific person or persons to enter order on behalf of the corp- do not require affidavit of domicile

essential facts allow RR to

effecvtily service acct, act in accrodance with special handling instructions for acct, understand the authority of any person acting on behalf of customer, act in complaince with rules

know your customer rule

every memeber shall use reasonable diligence, in regard to opening and maintenance of every acct, to know and retain essential facts concerning every customer and concerning authority of each person acting on behalf of such person

pattern day trades

execute 4 or more trades within 5 business days - generally do not keep position overnight

automated customer acct tranfer service

facilitates the transfer of customer accts from one brokerage frim to another brokerage firm - transfer must be completed in 3 bus days following validation of transfer - firm carrying acct must validate the transfer instrutions within 1bus day

cold calling act banks junk fax ads

fax sent to customer must contain-date and time that the fax is sent, identity of the send and telephone # of sender -does not require # of pages to be used

unearned income over amounts specified by IRS kiddie tax

for a child udner 18 will be taxed to the child at the rate at which is would be taxed at the parents top marginal rate if that rate is higher than child rate

limited trading authorization

gives rep the right to make purchase and sale decision for acct - but cannot withdraw any cash or securities from the acctount- checks must be disbursed payable to the owner of the acct

investment clubs

group of indivuidals that pool their money together and may choose any investment strategy that the group agrees on- conservative or speculative

unicorpated association

group of two or more indivudals who voluntarily enter into an agreement to form an organization for a common purpose- important factor with unincorpated association is that members have unlimited personal liabilty for any legal action

fee based advistors

have incentive to grow their clietns port in size as they would get paid more

partnership acct

if one of the partner dies- RR should freeze the acct because a partnership is legally dissolved at death of a parnter

handling a joint acct with rights of survirorship

if one party dies, ownership passes to the survivor, orders may be placed by either party, correspondence may be mailed to either party, both names must appear on corrsepponce, all checks are made payable to both

diligence in opening accts

investment obj, employment, estimated annual income from all sources, estimated net worth, martial status and # of depents, age

gifts and inheritance are not subject to community property laws if only one person

is names

fianal approval of new acct

is resonability of member firm as evidenced by the signature and approval of a principal executive office or partner

unregistered cold callers

limited to what they can do but they can- send investment literature to prospects, set up appointmets for rospectus with the registered rep and may extend invitations to firm sponsored events- CANNOT pre qualify for profile prospectus

community property

marrier couples have joint ownership of aseets under what is referred to as community property- all assets acquired after becoming married either acquired indivudially or as a couple- are owned equally by both persons regardless of whose name appears on ownership titles

trade confirmations of corporate and agency debt securities for retail customers

member firm must disclose mark up or mark down if the member also executes an offsetting principal trade in the same security on the same trading day- mark up/down myst be expressed in total dollar and percentage

custodian retains control over minors account until either

minor attains age of majority in which case the cash and securities remaining will be distributed to individual, cusodian is removed by court order or dies, if minor dide the reamining proceeds will be payable to minors estate

confirmations of transactions

must be sent to customer at or before the completion of any transaction in any secutity effected for or with the acct of a customer- all customers must be sent confirmations whether they are indivual customers of institional-- must disclose settlement date and disclose if security is callable

day traders

must have a minmum equity of 25,000, are most conerned with market timing risk, are least susceptiable to inflationary risk - buying power limit is 4 times the maintenance margin excess in the acct

customer acct rules

must recieve statment quarterly, statments must disclose the current securities positions in acct, ant and all money and debit balance, and any activty such as margin interest, interest and div payments

signatues, approval and recordkeeping

must rep completes new acct form, the form must be signed by branch maneger of principal - reg rep and customer do not need to sign

firms do not need

name of other b/d firms or educational background, tax return bracketst for previous year and designation beneficaries

new acct must contain

name, adress, email, telephone, annual income, net worth, bank reference, occupation and employer, citizen, date of birth, socia security, must provide govt issued ID, identy of reg rep, trusted contact person

priror relationship with person exists

no call restriction do not applt - this is defined as customer having an account in the last 18 months

advantage of sole propreitorship

no or low start up and maintenance costs, losses may be used to offset income for tax purposes

cold call rules do not apply to

non profit organizations, provisions set forth in this rule are applicable to members who make calls to wireless #s, firm may outsoure telemarketing but frim maintains reposniable for ensuring compliance with all provisions of the telemarketing rules

cold calling act

only call between 8am-9 pm local time of the party called, caller must provide the called aprty with the identity of the caller and a telephone number or adress at which the caller or frim may be contacted

change to orders

once an order has been entered- any change or correction to order requires approval of the branch manager or supervisor before the change is made

custodian account for UGMA there may only be

one person as custodian anf one minor and beneficary --account is opened with minors social secutity number, taxes due are paid by the minor - only new gifts are premitted-stock certifcates must be regustered in name of custodian

tenants in common

one tenant dies- his interest will pass to his estate and not other joint owner- no right of surviroship in a tenancy in common - either can place order

guaridian acct

opened for a child or adult with disabilities who is unable to manage their own financial situation -guardian appointment cert issued by court to open account- guardian handle acct but has no ownership

time and price discretionary orders

orders where RR only determines the time when the order will be entered and the price of the security at the time of entry- broker does not decide which security or how many shares or whether to buy or sell

fiduicary

person vested with legal rights and powers to be exercised for the benefit of other persons incldue trustees, executers, adminstrators, guardians, custodians, FBO

investment advisor

person who is in business of giving investnebt advice for compensation and not for execution of transaction - maangement fee charged by IA may be different for each investment advisro from fund to fund

auto dialing used with pre reorde message is

prohibited to residence, healthcares care and cell phone

trust acct

property is managed by one person for the benefit of another person- trustee is a fiduciary who holds title to the trust assets for the benefit of the trusts beneficaries - order for a trustee to establish a margin acct for the trust- is must be authorized in agreement

direct registration system

provides for electronic direct registration of securities in an investors name on the books for the transfer agent or issuer and allows shares to be transferred between transfer agent and broker electronically DRS provides investors with an alternate approach to holding securities - DRS can elect to have their securities registered directly on the issuers records in book entry

limited partnership acct

require signature of general partners when establishing new act and do not require the singature of each limited partner since the general partners manage and controls partnership

USA patriot act

requires full and true name, date of birth, street adress, tax payer ID #, acct should not be opened if this isnt porvided

types of trust include

revocable, irrevocable, living, testamentry

mitgatuon of risk

risk in inherent to investing- it can be mitigated by emplying - diversifaction,port rebalancing or hedging

profile changes

rr must update records to reflectt changes,updates required are employment, income, address, obj, as well as all changes in securities positions

margin accts are not allowed for minors

short sales are not allowed in UGMA acct

discretionary acct

teminated when owner dies, check must be made to owner, have rhe right to waive confirmations and statments , owner can still intiate orders, RR must write discretionary on order ticket- all order must be reiiewed by princpal of firm, no churning

RR should consider

temperament, marital, # of dependts and education needs, equity in their home

firm accepts orders from investment advisors on behalf of a client or clients

the IA is allowed to make allocations of their orders to clients accts- allocations must be recieved by the firm by noon on the business day following the trade- such allocations are not allowed for the rep trading on behalf of customers

if client wants to trnsfer his acct to different rep in same firm

the new rep must review and udate the customer acct from - newly assigned RR must treat the accr as a new customer and update the customers profile- once the reiew and update are completed RR can then make approtate recommendation

customer uses service of an investment advisor and wants duplicate copies of his confirmations and statement sent to advisor

the request would have to be made in writing by the customer and the customer woud have to provide the name and address of the investment advisor

new account form: trusted contact person

this is optional - firm may conact trusted person to disclose infor about customers acct, confirm specifivs of the customer current contact info, discuss the customer health, idenify power of attorney

statements would not be required

to show orginal price paid for the securities or year to date income in acct

when acct will be transfered

trading can continue untill the new firm begins transfer process

custodian must

turn over property when child reaches age- must mange acct for best interest or minor- generally seeking cpaital growth - usuallt permited to recieve compenation for service unless he is mino

disadvantahes sole proprietorship

unlimtied personal liabilty, owner should carry liabilty insurance, sole propreitors must pay selg employment tax for themselves and employees, are repsobilble for running business, recordkeeping

transfer on death

upon death- individual investorm or last surviving acct owner in joint acct, assets in the acct are passed on to beneficaries accorinign to written TOD agreement- eliinating porbabte- (court)- this is for basic securities including stocks, bonds and mutual funds

officrs of financial instion - if persident of bank

wishes to open margin acct- they would have to complete a new acct firm -but would not be required to obtain authorization from the banks board

client is terminally ill

you should advise client to see a tax attorny for estate tax advice