Series 7 Chapter 5 Questions

John is the custodian of his niece's UGMA account. John places an order for 100 shares of a very speculative stock for the account. What should the representative do?

Advise the custodian as to the suitability of the stock. The custodian should not place unsuitable orders in a UGMA account. The representative should inform the custodian of this.

Assigning Authority

Assigning authorization to a third party is giving discretionary authority to someone else. The custodian of an account is the person with discretionary authority over the account. To assign the authority to someone else, unsupervised, is not allowed.

Discretionary

If the registered representative may decide the specific security, the transaction requires discretionary authority and therefore must be done in a discretionary account. Determining the time or price does not require discretionary authority

Tenants in common

In a TIC account, each party must specify a percentage of interest in the account. If one party dies, his percentage of ownership passes to his estate, not to any other party to the account.

If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is TRUE?

It is cancelled on the death of either principal. When the customer or her son dies, the power of attorney also expires. However, a durable power of attorney will survive a declaration of mental incompetence and is useful in those cases where a parent suffers from dementia.

Trust acct

Margin trading in a trust account is permitted only if it is specifically provided for in the trust agreement.

One of your customers will be traveling extensively throughout Europe and asks your broker dealer to hold his mail and not send statements to his home. Under the rules, which of the following is TRUE?

Normal requests can be for up to to three months, but longer periods may be granted for acceptable reasons. A request must include the time period the request is being made for up to three months. Requests for longer periods may be granted for an acceptable reason such as safety or security concerns, but not merely for the sake of of convenience. The member firm must inform the customer of any alternate methods that the customer can use to receive or monitor account activity, such as email or through the member firm's website, and the member must obtain a confirmation from the customer that this information regarding alternate methods of communication was received.

Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done?

Ralph must open the account and name himself as the custodian. Under UTMA or UGMA, no special documentation is required. The account is opened in the name of the minor with the minor's Social Security number and the name of the adult listed as custodian.

If two brothers open a joint account tenants in common, at year's end, the member firm carrying the account will send Form 1099 to:

The brother whose SS number is on the account. All accounts, joint or otherwise, have a primary Social Security number. The holder of this number receives the year-end statement (Form 1099).

Tenants in common ownership provides that a deceased tenant's fractional interest in an account is retained by which of the following?

The deceased tenants estate. TIC (tenants in common) ownership of an account provides that a deceased tenant's interest in an account is retained by that tenant's estate and not passed on to the surviving tenant.

If three individuals have a tenants in common account with your firm, and one individual dies, which of the following statements is TRUE?

The decedent's estate becomes a tenant in common with the survivors. Two survivors continue as co-tenants with the decedent's estate

Which of the following is required to sign a new account form for a cash account?

The principal. To open a cash account, only the signature of the the principal accepting the account is required. For margin accounts, the signature of the customer is required on the margin agreement. The signature of the spouse is required only for a joint account.

Member accounts

Under FINRA rules, the employing member must be notified in writing of the prospective account and must be provided with duplicate statements and confirmations if they request so in writing. The employee does not need written permission from the employing member before opening the account. There is no requirement that FINRA be either notified or provided with duplicate statements and confirmations.

A gift given to a minor under UTMA may be revoked under which of the following circumstances?

Under no circumstances. Under both The Uniform Transfer to Minors Act (UTMA) and The Uniform Gifts to Minors Act (UGMA), all gifts to minors are irrevocable.