Unit 2

Which of the following client statements describes an investment objective rather than an investment constraint?

"I want to maximize my income."

You are reviewing an investor's balance sheet. Which of the following items would be found on a balance sheet and help you determine the client's net worth? 1. 401(k) balance 2. Credit card balance 3. Monthly income 4. Electric bill

1. 401(k) balance 2. Credit card balance

Regulation BI contains four key component obligations. Which two of them apply to registered representatives? 1. Disclosure Obligation 2. Care Obligation 3. Conflict of Interest Obligation 4. Compliance Obligation

1. Disclosure Obligation 2. Care Obligation

In constructing a profile for your customer, you wish to assemble information on both financial and nonfinancial investment considerations that affect your customer. Which of the following qualify as financial investment considerations? 1. Your customer's tolerance of various forms of risk 2. Your customer's dependents and their ages 3. Your customer's liquid net worth 4. Your customer's monthly credit card payments

3. Your customer's liquid net worth 4. Your customer's monthly credit card payments

You have been given the name of a new potential client who responded to a marketing piece sent out by your broker-dealer. Which of the following would be the most appropriate way to obtain information about the client's objectives and investment constraints?

A face-to-face meeting at the client's home

A customer opening a margin account must be supplied with a special margin risk disclosure. Which of the following are specific risks disclosed? 1. Customers are not entitled to choose which securities can be sold if a maintenance call is not met. 2. Customers can lose more money than initially deposited. 3. Customers are not entitled to an extension of time to meet a margin call. 4. Firms can increase their in-house margin requirements without advance notice.

All of these are part of the margin risk disclosure document.

Certain investments are available only to those who meet the SEC's definition of an accredited investor. Which of the following qualify?

An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence

There are certain securities offerings that are limited to those who meet the definition of accredited investor. The SEC requires that the issuer shall take reasonable steps to verify that purchasers of securities sold in those offerings are accredited investors. One way in which this may be accomplished for natural persons is obtaining a written confirmation from certain persons or entities that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor. Confirmation from which of the following would not meet the SEC's requirements?

An investment adviser registered and in good standing under the laws of the state of its principal office

When evaluating a client's suitability, which of the following would be considered a nonfinancial consideration?

Attitude

When discussing a client's finances, which of the following would be of least importance when planning to make a lump-sum investment?

Current salary

Your customer, age 29, makes $42,000 annually and has $10,000 to invest. Although he has never invested before, he wants to invest in something exciting. Which of the following should you suggest?

Customer should provide more information before you can make a suitable recommendation

A customer asks his registered representative to purchase $10,000 worth of shares in any pharmaceutical company that looks promising. Which type of account allows the registered representative to act in accordance with this instruction?

Discretionary

A wealthy individual has established a trust and named you as the trustee. If you wish to establish an account that permits the trust to engage in margin transactions, which of the following statements regarding margin trading is true?

It is permitted if provided for in the underlying documentation.

As a registered representative, it is important to be able to distinguish between investment goals and investment objectives. Which of the following would be an investment objective rather than an investment goal?

Preserving capital

Regulation T controls the extension of credit from

Regulation T controls the extension of credit from

A new client indicates the desire to invest in a highly speculative venture suitable only for those with significant net worth. The client assures you that he has the financial ability to sustain the loss of the entire investment. You believe it is necessary to verify that is the case. What documentation would help you?

The client's tax returns for the past three years

One of your customers would like to begin an investment program calling for regular monthly contributions of $200. Which of the following would be the best source for determining if this plan is reasonable?

The investor's income statement

An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence

Time horizon

Which of the following documents must an existing customer sign to establish a discretionary account?

Trading authorization

As a registered representative, if you are assigned to an existing account that was previously handled by another registered representative who has since left your firm, which of the following actions should you take first?

Verify the account information

A registered representative has a client who wants to save for college for her child. The child will be entering college in five years. This would be an example of

an investment constraint.

If a customer gives specific instructions to his registered representative to purchase a security that is clearly unsuitable in light of the customer's investment objectives, under FINRA rules, the registered representative

can enter the order

If a customer gives specific instructions to his registered representative to purchase a security that is clearly unsuitable in light of the customer's investment objectives, under FINRA rules, the registered representative

can enter the order.

As the poet Robert Burns wrote, "The best-laid plans of mice and men often go awry." The same could be said for investment plans. The term used to describe those things that can have an impact on the ability of our plans to reach fulfillment is

investment constraints

All of the following statements regarding liquidity are correct except

it is the inability to find willing buyers for an asset.

A new client of yours indicates that they remember hearing stories from grandparents who lived through the Great Depression of the 1930s. Those relatives lost almost everything they had in the stock market, and the client is not interested in seeing a repeat of the family history. When doing your information gathering, this would be an indication of the client's

level of risk tolerance.

A customer opens a margin account with a broker-dealer and signs a loan consent agreement. The loan consent agreement allows the firm to

loan out the customer's margin securities.

If a customer attempts to place an order for municipal securities that the registered representative deems completely unsuitable for the customer, the registered representative

may execute the order and mark the order ticket as unsolicited.

A customer asks her registered representative to exercise discretion over her account. To do so, the representative must do each of the following except

obtain approval from FINRA

A person wishing to grant a registered representative the right to make investment decisions for her account does so by

providing a limited power of attorney giving discretionary powers.

Complying with the suitability rules involves evaluating all of the following except

qualitative suitability. Under FINRA Rule 2111, there are three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. There is no such thing as qualitative suitability.

When reviewing a client's account, your supervisor notices that although each recommendation appears to be suitable based on that client's profile, there is a concern regarding the frequency of activity in the account. This is an example of

quantitative suitability.

Determining a client's investment objectives is an important function of being a registered representative. A customer who identifies as having a conservative investment posture would probably avoid

speculation.

Opening a margin account involves a number of different documents. The document describing how the interest on the margin debt is calculated is generally known as

the credit agreement.

All of the following are fiduciary accounts except

transfer on death (TOD) accounts.