account basics

Define: This is a review of the features, returns, costs and risks of the recommended product or strategy. Only those products with the best combination can be recommended to clients. In essence, this rule requires that firms have an internal "recommended list" that has completed this review.

Reasonable Basis Suitability

Define: A single recommendation might be suitable for a customer, however a large number of similar recommendations might not be. It all depends of the customer's objectives, needs, and ability to pay for the recommended transactions.

Quantitative Suitability

Who can open a custodial account?

Any adult can open a custodial account for any minor.

If a customer dies, the procedure is:

Cancel all open orders; Note the date of death on the account; Freeze the account from removal of assets; and Wait for instructions.

What 3 things do you need to transfer the assets into an account for the estate when someone dies?

1. A certified copy of the death certificate must be provided 2. A probate court clerk issues an "executor's letter," signed by a judge, which authorizes the named individual to act on behalf of the estate as the executor. Another name for this document is "letters testamentary." 3. Affidavit of Domicile must be completed and notarized. It declares the state of residence of the individual, therefore that State's laws will apply to the estate.

What are the three steps to open a discretionary account?

1. a new account form must be completed by the registered representative 2. approved in writing by the manager. 3. The customer must provide a signed trading authorization to the firm (first party trading authorization) allowing discretionary trades.

FINRA requires that if an employee of another FINRA member firm (whether registered or unregistered) wishes to open an account: (list 3)

1. prior written consent of the employing member firm must be obtained; 2. the executing member must be notified in writing of the employee's association with another member firm; and 3. on written request of the employer member, the executing member must provide duplicate confirmations and statements.

A copy of the options new account form is part of the Options Agreement that is sent to the customer, to be signed and returned within how many days of account opening?

15 days

What paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm? A Court order or executor's authorization certificate B Names of the beneficiaries of the estate C Social security number and date of death of the decedent D Approval of the attorney for the estate

A Court order or executor's authorization certificate authorizes the named individual to act on behalf of the estate as the executor. Another name for this document is "letters testamentary."

The rules of the options exchanges require that if a customer's financial condition changes materially, which of the following must be amended? A Options Agreement B Options Disclosure Document C Official Statement D Options Clearing Corporation Prospectus

A Options Agreement The rules of the options exchanges require that if a customer's financial condition changes materially, the options agreement signed by that customer must be amended to reflect the change. The revised agreement must be sent to the customer, and must be signed and returned within 15 days. At the same time, customer account information would also be updated.

Which statement is TRUE regarding a minor in a custodial account opened under UGMA reaching legal age? A The new adult must take control of the account B The new adult can let the custodian retain control of the account C The new adult can appoint a successor custodian D The new adult must liquidate the account, and open a new account with the proceeds

A The new adult must take control of the account To do so, the new adult must present proof of age and a government issued photo I.D. The new adult is free to do as he or she wishes with the account.

Which of the following is a TRUE statement about managed wrap accounts? The customer is charged: A a single annual fee based on total assets in the account for account transactions and maintenance B a commission for each transaction performed C a commission for each recommendation that results in a transaction D both a commission on each transaction performed and an annual maintenance fee based on total assets in the account

A a single annual fee based on total assets in the account for account transactions and maintenance "wrap" accounts, because they charge a flat annual fee and not commissions, are defined as investment adviser products.

A husband and wife have a joint account with a member firm. The wife calls the registered representative with instructions to liquidate their 500 share position of ABC stock. The registered representative should: A accept and execute the order as given B execute the order only after the branch manager approves C execute the order only after the husband approves orally D execute the order only after the husband approves in writing

A accept and execute the order as given In a joint account, any one of the owners can enter trades in the account. In addition, any one of the owners can authorize that checks be drawn on the account, however all checks must be drawn to full account name.

The requirement for independent verification of a customer's identity when opening an account CANNOT be satisfied by examining a copy of the customer's: A birth certificate B driver's license C passport D military ID

A birth certificate There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the customer's identity - either by matching this information to a government issued identification such as a driver's license or passport; or by using a database service that allows computer matching of this information. A birth certificate does not have the required information needed for matching.

Custodial accounts can be opened as a: A cash account only B margin account only C either a cash or margin account D either a joint cash or margin account

A cash account only

Jack Jones, age 82, has an individual account at your firm. He gives a full written trading authorization to his son, Jack Jones Jr. under a non-durable power of attorney. Upon the death of Jack Jones, the power of attorney: A is void B continues because it was given to an immediate family member C continues because it is a "full" power of attorney D continues until the executor over the Jack Jones estate is appointed

A is void non durable terminates on death

Form CRS must be provided to: A natural persons B accredited clients C hedge fund clients D institutional clients

A natural persons The rule requires that Form CRS be provided to "natural persons" - meaning human clients. It makes no difference if the human client is wealthy or not! The rule does not apply to institutional clients, including hedge funds, since they are presumed to be sophisticated and understand the nature of the relationship that they have with the broker-dealer or investment adviser.

A tender offer has been made for PDQ common shares. The brokerage firm department that would handle the tendering of shares is the: A margin department B purchase and sales department C reorganization department D order department

C reorganization department

The contact information for customers who wish to report inaccuracies on their account statements CANNOT be the: A representative servicing the account B compliance department of the broker-dealer C operations department of the broker-dealer D office of supervisory jurisdiction of the broker-dealer

A representative servicing the account

A durable power of attorney: A terminates upon the death of the principal B terminates upon the death of the agent C terminates upon the incapacitation of the principal D continues in perpetuity

A terminates upon the death of the principal

Who can donate to a custodial account?

Any adult can donate into a custodial account for a minor. The adult does not have to be related to the minor.

Under FINRA rules, initial approval of new accounts must be performed, in writing, by the: A Financial and Operations Principal B Branch Office Manager C Registered Representative D Supervisory Analyst

B Branch Office Manager Under FINRA rules, new accounts must be approved, in writing, by a Branch Office Manager ("BOM" - Series 9/10 license) or a General Principal (Series 24 license). The Compliance Officer (Series 14 license) is responsible for overall compliance matters and overall supervision and approval of accounts. This person typically resides in the home office, and could also approve new accounts, but the BOM is the better answer. A Supervisory Analyst (Series 16 license) writes or approves research reports. The Financial and Operations Principal (Series 27 license) is responsible only for the firm's financial reporting and back office operations.

In order to open a new account for a customer, the customer's name, date of birth, address and tax identification number must be: I obtained prior to account opening II obtained within a reasonable time before or after account opening III independently verified prior to account opening IV independently verified within a reasonable time before or after account opening A I and III B I and IV C II and III D II and IV

B I 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

A new customer wants to open an account at your firm. When you ask him for a street address, he tells you that he will be moving soon to a different apartment complex and wants to use his business address. Which statement is TRUE about this? A The only address to be used for Customer Identification purposes is the client's residence address and the account cannot be opened B The business address can be used for Customer Identification purposes and the account can be opened C If a residence address is not available, the address to be used for Customer Identification purposes is a P.O. Box D The account cannot be opened

B The business address can be used for Customer Identification purposes and the account can be opened

Which statement is TRUE about making a recommendation to an elderly customer under the "Senior Citizen Rule?" A Recommendations of specific designated securities that lack liquidity or that have withdrawal penalties are prohibited B The customer must fully understand the benefits, risks and costs of the recommended product C The firm has an obligation to shield the customer from risks that the customer wishes to take D Recommendations to senior citizens are only permitted by registered representatives that qualify as "Certified Senior Advisers"

B The customer must fully understand the benefits, risks and costs of the recommended product FINRA states that member firms do not have an obligation to shield their senior citizen customers from risks that they want to take, but the customer must fully understand the product being recommended. This must include a fair and balanced picture of the risks, costs, and benefits associated with the recommended product or transaction.

A customer places an order to sell 100 shares of ABC at the market. The initial execution report shows the trade occurring at $75.50. The firm later discovers that the trade occurred at $75.13. Which statement is TRUE? A The customer will receive $7,550 less any applicable commissions B The customer will receive $7,513 less any applicable commissions C The customer can DK the trade D The customer will receive $7,513 and can submit a claim to arbitration for an additional $37

B The customer will receive $7,513 less any applicable commissions The customer placed a market order to sell which was executed at $75.13. The firm erroneously reported the trade as occurring at $75.50. If there is an error in confirmation (as happened in this case), the customer gets the actual trade price. All the firm must do is send a corrected confirmation to the customer. If the firm made an error in execution, any loss due to the firm's error must be absorbed by the firm.

Which procedure is NOT required in order to open a new account for an individual customer? A The member firm must independently verify the customer's identity by matching customer provided information against government issued documents or a database B The member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity C The member firm must check the customer's name against a government watch list of known or suspected terrorists D The member firm must give notice to the customer that it will be requesting information to help fight funding for terrorism or money laundering activities

B The member firm must independently verify the validity of supporting government issued documents provided by the customer to prove identity If this is done by matching the information against a government issued I.D. such as a driver's license or passport, there is no requirement for the member firm to prove the validity of those documents. When opening a new account, the PATRIOT Act requires that the customer name be matched against the federally maintained terrorist watch list; and the customer must be given notice that this will occur.

Which statement is TRUE about a registered representative who wants to be appointed as trustee for a trust account being established by a client for the client's children? A The registered representative can act as the trustee without restriction B The registered representative can act as the trustee only with approval of the firm's compliance department C The registered representative can act as trustee only if no trustee fee is accepted D The registered representative cannot act as trustee under any circumstances

B The registered representative can act as the trustee only with approval of the firm's compliance department The trustee over a trust account is a fiduciary who must manage the account in the best interest of the beneficiaries. It is an inherent conflict of interest for the registered representative to act as the trustee. This is the case because he or she, as "trustee," has the power to trade the account, and that trading activity will result in commissions paid to the representative. Thus, the representative would have an incentive to overtrade the account, earning excessive commissions at the expense of the trust beneficiaries.

A married couple has a joint account at your firm held as "JTWROS." The representative knows that they are getting divorced. If one of the tenants calls to demand that a check be drawn, the registered representative: A can follow the request as given B can only follow the request if both the husband and wife give written permission C can only follow the request if the conversation is recorded D cannot follow the request

B can only follow the request if both the husband and wife give written permission Brokerage firm legal departments will place a withdrawal restriction on the account for a fixed time period (typically anywhere from 14 days to 28 days), pending written instructions from BOTH parties to the account. Therefore, BOTH parties will now have to agree to the withdrawal of any funds from the account.

The sending of customer account statements and confirmations by e-mail is: A prohibited B permitted if the customer submits a valid e-mail address C permitted if the customer makes the request verbally D permitted only if the branch manager approves

B permitted if the customer submits a valid e-mail address

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

Under SEC rules, when and to whom must a Form CRS be provided? A Within a reasonable time after account opening, only for retail clients B Within a reasonable time after account opening, to both retail and institutional clients C At, or prior to, the making of a recommendation or account opening, only for retail clients D At, or prior to, the making of a recommendation or account opening, to both retail and institutional clients

C At, or prior to, the making of a recommendation or account opening, only for retail clients

Under FINRA rules, a registered representative must keep a record of which of the following? A Customer dividends received B Copies of order tickets C Customer securities positions D Customer interest received

C Customer securities positions FINRA rules require that a registered representative keep records of all securities positions within a customer's account and a record by company of all customer positions in that security. There is no requirement for a registered representative to maintain copies of order tickets or dividends or interest received - these records are maintained by the brokerage firm.

Which of the following information is required on a new account form? I Type of account - cash or margin II Type of securities that can be traded in the account III Country of citizenship of account holder IV Proof of domicile of account holder A I and II only B III and IV only C I and III only D I, II, III, IV

C I and III only The type of account (cash or margin) is needed when opening a new account, since a margin account requires the customer's signature on a separate "margin agreement." The country of citizenship of the account holder is needed because the PATRIOT Act requires that a copy of the customer's passport be obtained if the account is being opened for a non-U.S. citizen. In addition, the non-U.S. citizen must present a U.S. tax identification number. There is no requirement for Proof of Domicile - this documents the state (not the country) in which the customer legally resides.

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 In a joint account, each owner can trade the account and can draw checks in the account's name. Partnership accounts are not joint accounts - only the designated partner(s) authorized in the partnership agreement can trade the account and draw checks - each individual partner is not permitted to do so.

Approval of new accounts for MSRB member firms can be performed by the: I Branch Office Manager II Municipal Securities Principal III General Securities Principal IV Financial and Operations Principal A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III The Municipal Principal (Series 53 license) approves accounts at municipal securities firms. In addition, the MSRB permits the General Principal (Series 24 license) or the Branch Office Manager (Series 9/10 license) to approve new accounts. The Financial and Operations Principal (Series 27 license) is the firm's accountant, and cannot approve the opening of customer accounts.

To open an options account, inquiry must be made into the customer's financial situation and needs in order to: I Make suitable customer recommendations II Determine if it is appropriate to open the account III Determine whether the customer should receive an Options Disclosure Document IV Determine the restrictions, if any, to be placed in the Options Agreement A I and II B III and IV C I, II, IV D I, II, III, IV

C I, II, IV The Options Disclosure Document and Options Agreement are mandatory parts of the option account opening procedure. Inquiry into the customer's financial situation is not made to determine whether the customer gets these. It is made to determine whether the account should be opened and what to recommend.

Which of the following joint accounts CANNOT be opened? A Adult brother and sister B Husband and wife C Parent and minor D Business partner and business partner

C Parent and minor

Under the requirements of the USA PATRIOT Act, if a member firm suspects that an account is engaging in money laundering, the firm is obligated to file a(n): A SAR with the SEC B FOCUS with the SEC C SAR with FinCEN D FOCUS with FinCEN

C SAR with FinCEN SAR: suspicious activity report

A client has an options account that is qualified to buy options and sell covered calls. The client calls his representative, telling him that he wants to sell naked calls in the account. In order to do this, all of the following procedures are required EXCEPT: A the registered representative must perform a new suitability determination to determine that naked options writing is appropriate for this client B The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction C The "Options Disclosure Document" must be provided before executing the transaction D The Registered Options Principal must reapprove the account for naked options writing

C The "Options Disclosure Document" must be provided before executing the transaction For a customer to move up in Level, the suitability determination must be redone and the ROP (Registered Options Principal) must reapprove the account. To move to Level 4, the customer must also be given the "Special Statement for Uncovered Options Writers." This discloses that:

A potential customer has visited the registered representative's branch office and is ready to open an account. The representative asks to see the customer's driver's license and the customer says "I will show it to you, but you cannot photocopy it - I am worried about identity theft." Which statement is TRUE? A The account cannot be opened unless a photocopy of the driver's license is maintained in the customer's account file B The account cannot be opened unless the branch manager signs a statement that he or she examined the customer's driver's license information and matched it to the new account form record C The account cannot be opened unless the firm independently verifies the customer's identity using the driver's license information or another non-documentary method. D The account can be opened with no additional documentary procedures required

C The account cannot be opened unless the firm independently verifies the customer's identity using the driver's license information or another non-documentary method. There is no requirement to get a photocopy of a government issued I.D.. The requirement is that the customer information be matched to either a government issued I.D. or to a database service.

A customer places an order to sell 100 shares of XYZ at the market. The initial execution report shows the trade occurring at $38.50 and this is reported to the client. The firm later discovers that the trade occurred at $38.25. Which statement is TRUE? A The customer must be given the reported sale price of $38.50 B The trade will be cancelled C The customer must accept the actual sale price of $38.25 D The customer will receive the average of the 2 prices

C The customer must accept the actual sale price of $38.25 If there is an error in confirmation or reporting (as happened in this case), the customer gets the actual trade price.

A customer gives her registered representative instructions to buy 100 shares of XYZ stock during the trading day, if it looks attractive. As of the end of the day, the trade is not executed and the customer wants to extend the instructions through the end of the week. Which statement is TRUE? A The registered representative can accept the verbal instructions because only price and time decisions are left to the representative B The registered representative can accept the verbal instructions only if the principal approves C The registered representative can do this only if the customer gives written instructions D The registered representative may not accept the customer's instructions under any circumstances

C The registered representative can do this only if the customer gives written instructions Verbal discretion over price and time of execution is only permitted for retail clients if the trade is executed that day. To take price and time discretion from a retail client covering a longer time frame requires written authorization (a power of attorney) from the customer.

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

To prevent financial exploitation of seniors, FINRA requires that when opening an account for a client, reasonable efforts must be made to obtain the name, phone number, and mailing or e-mail address of: A the client's attorney B anyone granted a power of attorney by the account owner C a trusted contact person D a trustee over the account

C a trusted contact person To address growing problems with financial exploitation of vulnerable senior citizens, FINRA requires that "reasonable efforts" be made to obtain the name and contact information of a "trusted contact person" when an account is being opened. Note that this requirement applies to any new account, not just to accounts opened by senior citizens (age 65 or older).

To open an options account, the customer must be sent the Options Disclosure Document: A 15 days prior to opening the account B 5 days prior to opening the account C at or prior to opening the account D 15 days after opening the account

C at or prior to opening the account

A custodial account is opened by a parent for her 12-year old daughter. Securities in the account are sold later that year for a $3,000 profit. The gain will: A not be taxed until the daughter reaches the age of majority B be taxed at the bracket of the minor C be taxed at the bracket of the parent D be taxed at the appropriate trust and estate tax bracket

C be taxed at the bracket of the parent

A customer directs a registered representative to execute a trade which the representative believes is unsuitable for the customer. After explaining this, the customer directs that the trade be performed. The representative should: A refuse the order B obtain the manager's written approval before entering the order C execute the order, but note his exception in the customer account file D close the account

C execute the order, but note his exception in the customer account file

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 estate false, it is included

The purpose of OFAC (Office of Foreign Assets Control) is to: A set higher margin requirements for foreign nationals that wish to invest in the United States B monitor the activities of foreign investors in the U.S. markets C impose economic sanctions against hostile foreign countries and groups D monitor foreign currency inflows into the U.S. markets

C impose economic sanctions against hostile foreign countries and groups The SDN list must be checked before opening an account for a foreigner or foreign entity.

Assets in a customer account may be subject to a delay in transfer to another brokerage firm if they are held in: A the name of that customer B street name at DTCC (Depository Trust and Clearing Corporation) C proprietary products at that broker-dealer D non-proprietary products at that broker-dealer

C proprietary products at that broker-dealer

In order to open a discretionary cash account, all of the following procedures are required EXCEPT: A signature of manager on new account form B signed trading authorization C signed customer's agreement D completed customer new account form

C signed customer's agreement A signed customer's agreement is only required for a margin account; it is not used in a cash account. The customer's agreement is the hypothecation agreement. To open a discretionary cash account, a new account form must be completed by the registered representative and approved in writing by the manager. The customer must provide a signed trading authorization to the firm (first party trading authorization) allowing discretionary trades.

To open a partnership account, the social security number(s) or tax identification number to be used is (are) the number(s) of: A all the partners to the account B the 3 largest partners to the account C the partnership D the broker opening the account

C the partnership To open an account for any legal business entity such as a corporation, partnership or trust, the tax identification number of the entity must be used. Note that when these business entities are formed, they must apply to the IRS at that time for a tax identification number. Social security numbers are only used for accounts opened in the names of humans!

Define: Once the recommendation has completed "reasonable basis" suitability, that does not mean that it can be recommended to all customers. To recommend it to a customer requires that "customer-specific" suitability be determined.

Customer-Specific Suitability

The definition of a pattern day trader is a person who executes at least: A 1 day trade in a 5 business day period B 2 day trades in a 5 business day period C 3 day trades in a 5 business day period D 4 day trades in a 5 business day period

D 4 day trades in a 5 business day period Day traders take on greater risks than normal customers and are therefore subject to a more stringent suitability determination and must receive a risk disclosure document prior to account opening.

If an employee of a FINRA member firm wishes to open up an account with another FINRA member firm, all of the following statements are true EXCEPT: A The employee must get written consent of his or her employing member firm to open the account B The executing member firm must be notified, in writing, of the fact that the individual opening the account is associated with another member firm C Duplicate confirmations and/or statements must be sent to the employing member, if requested in writing by the employer D Duplicate confirmations and/or statements must be sent to FINRA, if requested in writing

D Duplicate confirmations and/or statements must be sent to FINRA, if requested in writing

Which of the following statements are TRUE regarding Trust Accounts? I A copy of the trust agreement must be obtained before any transactions are allowed II A new account form must be completed III The trust agreement will specify the transactions that the trustee is allowed to perform IV The account cannot be a margin account unless authorized by the trust 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

A registered representative believes that municipal bonds may be an appropriate investment for her customer. In order to determine whether such a recommendation would be suitable, which of the following would be considered? I The state in which the customer resides II The components of the customer's existing portfolio III The tax bracket of the customer IV Whether the customer is subject to the alternative minimum tax A III only B I, IV C I, II, III D I, II, III, IV

D I, II, III, IV In order to determine the suitability of a municipal investment for a customer, it is necessary to inquire as to the customer's state of residence, since municipal issues are typically exempt from taxation within the state of issuance; the customer's existing portfolio, since any new recommendations should complement the current investments; the customer's tax bracket, since muni's are generally exempt from federal tax on the interest income and this is of greatest benefit to those in higher tax brackets; and whether the customer is subject to the alternative minimum tax, since certain types of municipal interest income are now included in this computation.

The FINRA suitability rule requires all of the following EXCEPT: A Reasonable Basis Suitability B Customer-Specific Suitability C Quantitative Suitability D Qualitative Suitability

D Qualitative Suitability

A registered representative ("RR") has entered an order to buy 100 shares of ABC at $50 per share for a customer. The transaction is executed at $50 per share, and when the representative is reporting the trade to the customer, she notices that the account number on the executed order ticket is wrong. Which statement is TRUE? A The transaction will be withdrawn from the customer's account and taken to the member firm's account B The customer has the option of breaking the trade Incorrect answer C. You did not choose this answer. C The "RR" may change the account number on the order ticket to the correct number without any further action needed D The "RR" may change the account number on the order ticket to the correct number if the branch manager approves in writing

D The "RR" may change the account number on the order ticket to the correct number if the branch manager approves in writing

A registered representative has taken an order from a customer to buy 100 shares of ABC stock @ $51 per share. The trade is executed at $57 per share and a confirmation is sent to the customer at this price. The lowest price at which the stock traded this day was $55 per share. Which statement is TRUE? A The customer must be sent a corrected confirmation showing that the customer is only required to pay $51 per share B The customer must pay the $57 per share actual execution price C The customer must be sent a corrected confirmation at the lowest trading price for that day of $55 per share D The transaction will be withdrawn from the customer's account and taken to the member's firm's account

D The transaction will be withdrawn from the customer's account and taken to the member's firm's account

All of the following paperwork is customarily needed to open a margin account EXCEPT: A Customer's agreement B Loan consent agreement C Credit agreement D Trading authorization

D Trading authorization To open a margin account, the customer must sign a margin agreement (also known as the customer's agreement), which pledges the securities in the account as collateral for the margin loan. The credit agreement explains how interest is charged on the loan. The loan consent agreement permits the broker to lend out the customer's securities for short selling by other customers of the firm. These three documents are needed to open the account. A third party trading authorization is signed by the customer only if he or she wishes to allow someone else to trade the account.

To open a margin account: A no signature of the customer is required B a customer signature must be obtained on the hypothecation agreement prior to placing the first order in the account C a customer signature must be obtained on the hypothecation agreement at, or prior to confirmation of the first transaction in the account D a customer signature must be obtained on the hypothecation agreement at, or prior to settlement of the first transaction in the account

D a customer signature must be obtained on the hypothecation agreement at, or prior to settlement of the first transaction in the account The rule for signing a hypothecation agreement when opening a margin account is interesting - it permits margin accounts to be opened over-the-phone or on line, if the firm chooses to do so! As long as the firm has the signed margin agreement by settlement of the first trade, all is good!

All of the following information is required to open an account under FINRA rules EXCEPT: A the country of citizenship of the customer B whether the customer is employed by another financial services firm C the customer's birthdate D a letter of reference for the customer

D a letter of reference for the customer

Form CRS must be provided to customers at the earlier of: A making a recommendation B account opening C implementing an investment strategy D any of the above

D any of the above The rule actually requires that the Form CRS be delivered to customers at the earliest of recommending an account type; recommending a transaction; placing an order; account opening; or implementation of an investment strategy.

An institutional hedge fund investor will open a prime brokerage account for all of the following reasons EXCEPT to: A consolidate account positions with one broker to ease recordkeeping B use a variety of executing brokers who, in return for receiving commissions on trade executions, give research to the investor C get lower financing rates on borrowed funds because all positions are aggregated D be able to charge lower management fees to its investors

D be able to charge lower management fees to its investors Hedge fund investors typically use a "prime broker" to consolidate all of their positions with one brokerage firm. In a prime brokerage agreement, the institutional investor can use different executing brokers for its trades, but all of these trades are settled by the "prime broker" who maintains custody of the positions, and most importantly, provides margin financing on these positions and arranges for stock loans on short stock positions.

All of the following statements are true about a member firm's Business Continuity Plan EXCEPT the BCP must: A address how the member firm would deal with a significant business disruption B include scenarios of increasing severity and how the member plans to respond C be provided to any new customer at account opening D be provided to customers every 36 months after the account is opened

D be provided to customers every 36 months after the account is opened Customers must be given a summarized version of the BCP at account opening. Additionally, the BCP must be posted on the member firm's Web site and must be mailed to customers on request.

To open a joint account for a husband and wife, the social security number to be used for IRS reporting purposes is: A the husband's social security number B the wife's social security number C both the husband' and wife's social security number D either the husband's or wife's social security number

D either the husband's or wife's social security number

After opening an options account, 15 days have passed and the customer has not returned the signed options agreement. The proper procedure is to: A refuse all further trades in the account B freeze the account for 90 days C only accept orders for opening transactions D only accept orders for closing transactions

D only accept orders for closing transactions If the customer does not return the signed options agreement within 15 days' of account opening, no new positions can be initiated in the account. Orders can be accepted only to close out existing positions. There is no requirement to liquidate the account, nor to freeze the account

A FINRA member firm uses a structure for its wealthy client group where a "team" of registered representatives with differing specializations services those accounts. This is: A prohibited under FINRA rules B permitted only if a written agreement is signed by all of the representatives in the team C permitted only if a record is maintained of the CRD number of each representative assigned to the account D permitted only if the firm documents name, role, and responsibilities of each member of the team

D permitted only if the firm documents name, role, and responsibilities of each member of the team Note that this rule (FINRA Rule 4512) only requires the recording of the names of the representative(s) assigned to the account. It does not require the CRD number of the representative as part of the record, though this information is readily available.

When do discretionary tickets need to be approved?

Discretionary order tickets must be approved by the manager "promptly," meaning by the end of the day. There is no requirement that they be approved before entry.

Which regulator is responsible for enforcing provisions of the Bank Secrecy Act and the PATRIOT ACT?

FinCEN FinCEN is part of the Department of Treasury and stands for the Financial Crimes Enforcement Network. While FinCEN itself was not created until 1990, the Department of Treasury was given responsibility for tracking large cash deposits over $10,000 under the Bank Secrecy Act of 1970 (BSA).

Which principal is the firm's accountant?

Financial and operations principal

Which of the following conditions must be met to send a confirmation solely to a person holding a power of attorney in a customer account? I The customer must request the sending of the confirmation in writing II The person holding the power of attorney must request the sending of the duplicate confirmation in writing III The registered representative must believe that the action is prudent IV The manager must approve of the action in writing

I The customer must request the sending of the confirmation in writing This is a purely clerical procedure, so no approval of the principal is required, nor is there a "prudent man" test. The written request must come from the customer, not the recipient of the confirmation. Remember, the account belongs to the customer, and all actions taken are at the direction of the customer.

Which of the following procedures are required at, or prior to, opening a new options account? I A new account form must be completed II The customer must be sent the latest Options Disclosure Document III The customer must sign and return the Options Agreement

I and II

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

I and II One way for an Investment Adviser account to be opened is for each client to open an account at a brokerage firm, with the client giving the investment adviser Third Party power of attorney. The account is held in the name of the Second Party - that is, the customer. The other way for an investment adviser to open an account is on an Omnibus basis. In this situation, the Investment Adviser is the Second Party, opening a "group account." The names of the individual customers in the account are not known to the brokerage firm. From the brokerage firm's standpoint, the customer is the Adviser. Investment advisers are prohibited from opening joint accounts containing many different clients. Under Federal and State law, investment advisers must either keep customer monies segregated in separate accounts (choice I above); or must be able to account for each customer's positions separately within a "master" account - that is, an Omnibus account.

Which of the following signatures must appear on the New Account Form when a customer is opening a cash account? I Customer II Registered Representative III Manager or Principal A I and II B II and III C I, II, III D None of the above

I and II The customer does not need to sign the new account form - he or she does sign the margin agreement and loan consent agreement if a margin account is opened, however. This rule allows brokerage firms to open new cash accounts "over the phone." The registered representative signs the new account form, indicating that he believes the information to be true. The manager must review and approve the account by signing the form, before any trades take place.

In order to open a new account for an individual customer, which information is required on the new account form? I Date of birth II Date of reaching legal majority III Social security number IV Telephone number

I and III

Initial approval of options accounts is performed by the: I Branch Office Manager II General Principal III Registered Options Principal IV Financial and Operations Principal

I and III

Which statements are TRUE about non-managed fee based accounts? I The customer must be provided with a disclosure document prior to account opening II The customer must be provided with a disclosure document within 15 business days of account opening III The account must be reviewed at least annually for its appropriateness as a fee based account IV The account must be reviewed at least bi-annually for its appropriateness as a fee based account

I and III

In order to recommend a structured product to a customer, which of the following statements are TRUE? I The member firm must perform a "reasonable basis" suitability determination evaluating the characteristics of the product to be recommended against competing products II Completion of the "reasonable basis" suitability determination means that the structured product can be recommended to all the firm's customers III The member firm must perform a "customer specific" suitability determination prior to recommending a structured product to a customer IV The registered representative is prohibited from offering the product unless the registered representative obtains an advanced CFA certification

I and III I The member firm must perform a "reasonable basis" suitability determination evaluating the characteristics of the product to be recommended against competing products III The member firm must perform a "customer specific" suitability determination prior to recommending a structured product to a customer

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

I and III The third party trading authorization with a limited power of attorney can enter orders but cannot order that checks be drawn. Any power of attorney dies when the customer dies.

When comparing fixed fee accounts to wrap accounts: I Fixed fee accounts generally only cover transaction costs II Fixed fee accounts generally cover transactions costs, asset allocation and portfolio management III Wrap accounts generally only cover transaction costs IV Wrap accounts generally cover transaction costs, asset allocation and portfolio management

I and IV

A registered representative is allowed to choose which of the following in a transaction without requiring written trading authorization from the customer? I Price of the security to be purchased II The security to be purchased III The amount of the security to be purchased IV The time of trade execution

I and IV A registered representative is allowed to select the price and time of execution without the order being considered as "discretionary."

Information about SIPC, including a copy of the SIPC brochure, must be made available to customers: I at account opening II on each trade confirmation III on each account statement IV annually

I and IV At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (Securities Investor Protection Corp., which insures customer accounts against broker-dealer failure), through which the customer can obtain a copy of the SIPC brochure. In addition, this information must be provided to the customer annually thereafter.

For an employee of another firm to open an options account, which of the following statements are TRUE? I Prior written approval must be obtained from the employing firm to open the account II No prior written approval of the employer is needed to open the account III Prior written approval of the employer is needed before executing each trade IV No prior written approval of the employer is needed before executing each trade

I and IV For an employee of another firm to open an options account, prior written approval of the employer is required and duplicate confirmations of all trades must be sent to the employer. There is no requirement to get employer approval prior to executing each trade. *employee of another firm needs permission to open account but not to execute the trade*

Which statements are TRUE when comparing a custodial account is opened under UTMA (Uniform Transfers to Minors Act) to one opened under UGMA (Uniform Gifts to Minors Act)? I Under UGMA, assets in the account are transferred to the new adult at legal age II Under UGMA, assets in the account are transferred to the new adult at the age specified by the custodian III Under UTMA, assets in the account are transferred to the new adult at legal age IV Under UTMA, assets in the account are transferred to the new adult at the age specified by the custodian

I and IV I Under UGMA, assets in the account are transferred to the new adult at legal age IV Under UTMA, assets in the account are transferred to the new adult at the age specified by the custodian

An officer of a trust wishes to open a margin account with your firm. This is allowed:

if the trust agreement specifically authorizes the opening of a margin account

A customer who has previously placed an order calls back and cancels. The representative informs the customer that the order already has been filled. Which statements are TRUE? I The order is binding on the customer II The order is not binding on the customer III The order can be canceled by the customer IV The order cannot be canceled by the customer

I and IV The customer cannot just change his or her mind after having placed an order that has been properly filled by the firm. The execution is binding on both the firm and the customer.

A customer that discovers an error on his or her account statement must report the error: I promptly II before the next account statement is generated III to the representative servicing the account IV to the member firm maintaining the account

I and IV The issue at hand is that FINRA is concerned about registered representatives that do unauthorized trading in their customer accounts to generate commission income, without the customer knowing about or authorizing the transactions. So FINRA requires that a legend be placed on customer account statements that any errors found must be reported to the member firm promptly.

A registered representative solicits an order from a customer to buy 200 shares of XYZZ at $50. The customer agrees and the registered representative completes the order ticket and enters the order for execution. Once the member firm processes the order, the order ticket record must contain which of the following information? I Time of order receipt II Time of order entry III Time of order execution IV Time of order confirmation

I, II, III

Under FINRA rules, to ascertain which investments are suitable for the customer, the registered representative would inquire about the customer's: I Existing investment holdings II Current investment objective III Financial situation and needs IV Daily living expenses

I, II, III

To determine the suitability of recommendations made to a customer, inquiry should be made about which of the following? I Investment objective II Investment experience III Existing portfolio of investments IV Tax bracket

I, II, III, IV

In order to determine suitability for a day trading account, the member firm must ascertain the essential facts relative to the customer's: I Investment objectives II Investment and trading experience III Financial situation, including tax status IV Age, marital status and number of dependents

I, II, III, IV Prior to opening an account that will engage in day trading, the member firm must exercise reasonable diligence to ascertain the essential facts relative to the customer including investment objectives; investment and trading experience and knowledge; financial situation, including estimated annual income, net worth and liquid net worth; tax status and employment status; and age, marital status, and number of dependents.

To open an options account, inquiry must be made as to the customer's: I Investment Objective II Financial Needs III Marital Status IV Liquid Net Worth

I, II, III, IV To open an options account, a customer must give detailed financial disclosure. Inquiry must be made as to the customer's investment objective, investment experience, financial situation and financial needs. Inquiry must also be made about the customer's income, net worth, liquid net worth and marital status.

A customer wishes to open an options account with your firm. Which of the following procedures are required PRIOR to the first trade? I The new account form must be completed II The customer must be sent an Options Disclosure Document III The customer must sign an Options Agreement IV The Registered Options Principal must approve the account before the first trade

I, II, IV

Define: typically used by hedge funds, a number of executing brokers are used and then all trades are consolidated in an account maintained at the "primary" broker. The prime broker settles all trades, maintains custody, and provides financing (margin) for the positions.

Prime brokerage account

Which of the following information is needed to open a new cash account? I Customer name II Customer birthdate III Customer citizenship IV Customer occupation

I,II,III,IV

Under FINRA rules, if a member suspects that a senior citizen is being financially exploited: I a temporary hold may be placed on disbursements from the account for up to 10 business days II a temporary hold may be placed on disbursements from the account for up to 15 business days III any hold placed on the account, if supported by the member's review of the situation, can be extended for another 10 business days IV any hold placed on the account, if supported by the member's review of the situation, can be extended for another 15 business days

II and III

Under the requirements of the USA PATRIOT Act, when opening an account for a non-resident alien, the registered representative must obtain which of the following from the customer? I United States Passport Number II Foreign Country Passport Number III United States Tax Identification Number IV Foreign Country Tax Identification Number

II and III

Which statements are TRUE regarding the mailing of account statements to customers? I If there is no trading activity in the account, statements must be mailed monthly II If there is no trading activity in the account, statements must be mailed quarterly III If there is trading activity in the account, statements must be mailed monthly IV If there is trading activity in the account, statements must be mailed quarterly

II and III

Regarding arbitration agreements between member firms and customers, which statements are TRUE? I FINRA requires each customer to sign an arbitration agreement as part of the account opening process II Each member firm can require each customer to sign an arbitration agreement as part of the account opening process III Industry arbitration is preferred over litigation as a means of settling disputes because it is cheaper and faster IV If an arbitration agreement is signed, a copy must be sent to the customer annually for reconfirmation

II and III II Each member firm can require each customer to sign an arbitration agreement as part of the account opening process III Industry arbitration is preferred over litigation as a means of settling disputes because it is cheaper and faster FINRA does require that if a customer signs an arbitration agreement as part of the account opening process, then the customer must be sent a separate "stand alone" copy of the agreement and must sign an acknowledgement of receipt within 30 days of account opening. Note that there is no requirement to resend the customer a copy of the arbitration agreement annually.

Under the Know Your Customer Rule, in order to open and maintain a customer account, each registered representative must: I know "every" fact concerning the customer II know "every essential fact" concerning the customer III follow KYC procedures only when making recommended transactions to a customer IV follow KYC procedures regardless of whether transactions in the account are recommended or not recommended

II and IV The Know Your Customer rule is separate from the "Suitability" rule. The KYC rule requires that the essential facts about the customer be collected at account opening, so that the member firm can: effectively service the customer's account; act in accordance with any special handling instructions for the account; understand the authority of each person acting for the customer; and comply with applicable laws and regulations.

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

II and IV II If a party in a Joint Tenants With Rights of Survivorship account dies, his or her share is included in his taxable estate IV If a party in a Tenancy in Common account dies, his or her share is included in his taxable estate

Under SEC rules, customer account information must be verified by the member firm: I within 15 days of account opening II within 30 days of account opening III every 12 months IV every 36 months

II and IV SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for verification and updating (if needed) every 36 months thereafter.

What happens when an order ticket is incomplete?

Incomplete order information on an order ticket will result in the ticket not being processed. It will be returned to the representative for entry of all of the required information.

Is there a requirement for a brokerage firm to follow special procedures to open an account for an employee of that firm?

NO, There is no requirement for a brokerage firm to follow special procedures to open an account for an employee of that firm. However, if an employee of another firm wishes to open an account, then prior approval of the employer is needed. This is also true for any account in which the employee has a "financial interest" or discretionary authority. Thus, accounts for the employee's children or immediate relatives fall under the rule (unless it can be demonstrated that the employee does not have a financial interest in such an account).

Are customers required by FINRA to sign an arbitration agreement?

No

Can you buy on margin in custodial accounts?

No

Does the customer sign the new account form?

No

Can investment advisers open joint accounts for each client?

No Under Federal and State law, investment advisers must either keep customer monies segregated in separate accounts (choice I above); or must be able to account for each customer's positions separately within a "master" account - that is, an Omnibus account.

When the customer fails to provide sufficient personal information on his financial background and investment objective, can recommendations can be made?

No but, Unsolicited transactions can still be accepted in the account.

Can a custodian let rights expire unexercised?

No because its like throwing away money

Are fixed fee accounts managed?

No, non-managed They do not include charges for asset allocation and portfolio management.

Do member firms have an obligation to shield their senior citizen customers from risks that they want to take?

No, they just have to be made aware of the risks

Who creates the list of SDNs that must be checked when opening an account for a foreigner or foreign entity?

OFAC The Department of Treasury's Office of Foreign Assets Control (OFAC) maintains a list of named countries, organizations, and individuals with whom anyone in the U.S. is prohibited from doing business. The "SDN" (Specially Designated Nationals) list includes such countries as Iran and North Korea and such organizations as the Al-Qaeda, as well as specified individuals associated with these countries and organizations.

Define: an account of pooled customer monies, where there is no specific identification to the broker carrying the account of who the specific customers are. Investment advisers who manage money for many customers often use such accounts.

Omnibus NOT a type of joint account

Define: account for each customer's positions separately within a "master" account

Omnibus account investment advisors open this kind of account

the executor's letter is used to obtain a ? Identification Number for the account.

Tax

Define: each person has an undivided interest with each owning 100% of the account (another name for such an account is "Tenants by Entireties").

Tenancy With Rights of Survivorship

Define: each person has a divided interest with a specified ownership percentage for each party

Tenants in Common

Who is the first and second party to a brokerage account?

The "First Party" to a brokerage account is the brokerage firm; the "Second Party" to a brokerage account is the customer; the "Third Party" to a brokerage account is anyone other than the broker or customer.

Does the convenience account signer have ownership rights?

The "convenience signer" has no ownership rights, so all of the adult children know that the "convenience" signer, who is their sibling, will not have access to the funds in the account upon the parent's death. The funds will then be distributed according to the parent's will.

Durable vs Non-Durable Power of Attorney

The distinction between a durable and a non-durable power of attorney is that a non-durable power of attorney terminates if the grantor is mentally incapacitated whereas durable power of attorney remains in force if the grantor is mentally incapacitated.

credit agreement

The formal agreement between a provider and a borrower setting out the amount borrowed, the interest charged, the arrangements for repayment and any other terms and conditions.

How many custodians can be on a UGMA/UTMA account?

There may only be one person as custodian, who has to be an adult.

True or false: There is no requirement to send duplicate confirmations and statements to FINRA on request

True!

Is real estate a permitted asset in UTMA accounts?

Yes One of the differences between them is that UTMA permits donations of real estate and artwork into the account, while UGMA does not. Real estate and artwork are permitted "gifts"

Numbered Account

account identified with a number, not a name. Allowed if owner files a statement with the broker-dealer attesting to ownership

Fiduciary accounts must be in what kind of accounts?

cash

In order to give a power of attorney, the grantor must be legally...

competent Thus, the grantor cannot be a minor, since minors have no legal capacity. Additionally, the grantor cannot have been legally adjudicated as incompetent in a court of law - typically due to mental incapacitation - in which case a guardian or conservator is appointed to manage that person's affairs.

If an individual account is held TOD - Transfer on Death - then the only paperwork that needs to be submitted to transfer the assets to the name beneficiary is a...

death certificate

define: requiring a written power of attorney, an account in which an investor gives the broker authority to choose the amount and/or the security to be traded in the account. Note that no power of attorney is needed for a broker to select the price and time of execution in an account - this is not considered to be "discretionary."

discretionary account

which type of authority: can trade and withdrawal

full authority (POA)

Hypothecation Agreement

gives permission to the broker/dealer to pledge customer margin securities as collateral

What if the representative did not know about the pending divorce and the wife asks to withdrawal funds?

he or she could simply follow the instructions of the husband or wife - the normal procedure in a joint account. However, any checks coming out of the account would have to be made out to full account name - that is, the name of both the husband and wife. Therefore, to cash the check, both signatures would be required.

What is a synonym for customer's agreement?

hypothecation agreement

Any fixed fee product is defined as an "--" product.

investment advisor

which type of authority: allows third parties to trade but no withdrawals

limited authority

Which department keeps a record of keeps a record of all stock positions, and debit and credit balances in customer accounts?

margin department

When the customer's account is turned over to you, you should contact the customer to update the...

new account form

Can TOD be used for joint accounts?

no, only individual it allows the account owner to name the beneficiary or beneficiaries (by percentage) to whom the assets are to be transferred on death. The transfer avoids probate.

If you are appointed as the guardian for a client who can instructions be received from?

only the guardian IF the customer has been declared legally incompetent

Consent to loan agreement

optional; consent to lending your shares to people who want to go short

True or false: no options are permitted in wrap accounts

options ARE permitted in wrap account investment advisors use these

Define: a recap of the customer new account profile including the suitability determination and it qualifies the customer for a level of options trading, detailing which options transactions are permitted.

options agreement

Define: something that belongs to the member firm or that is only sold by the member firm - for example, a member firm can have a proprietary mutual fund, meaning it is only sold by that firm and no one else.

proprietary

The requirement for broker-dealers to disclose their privacy policies to customers, and to permit customers to "opt out" of having their information disclosed to third parties, is outlined under SEC:

reg SP

Day traders must receive what document PRIOR to opening account? (due to riskier trades)

risk disclosure document

Custodial accounts cannot be held in...

street name

Who can enter trades in a custodial account?

the custodian

FINRA does not allow a customer's mail to be held unless...

the customer requests in writing As long as the request does not exceed 3 months, no other information is needed. However, if the customer wants the mail held for more than 3 months, then a valid reason must be given in the request, such as safety or security concerns.

Shares are purchased in a custodial account, and are later sold at a profit. Tax liability rests with the:

the minor

Interest income in a custodial account is reported on the tax return of the:

the minor The social security number placed on a custodial account is the minor's. Any income in the account is taxable to the minor.

True or false: Alterations to executed order tickets are prohibited unless the manager knows the reason for the change; and approves, in writing, of the change on the order ticket.

true

True or false: There are no trading authorizations in Executor accounts - only the executor gets to trade the account.

true

True or false: order tickets must be prepared in writing prior to entry

true! Once an order has been executed, no alterations are permitted to the ticket unless a manager approves in writing.

Convenience Account

utilized to assist the elderly or infirm with their financial obligations. The account holder will add an additional person to the account which gives them the ability to write checks, pay bills and perform other banking functions for the convenience of the account holder.

Define: a single annual fee based as a percentage of assets under management is charged. There is no commission charge for each transaction performed in such an account nor are charges imposed for safekeeping of securities.

wrap account all services performed by the broker are "wrapped" into a single account

Is POA revoked upon death?

yes