Customer Accounts: Account Basics Review Questions

Regarding arbitration agreements between member firms and customers, which statement is FALSE? A: FINRA requires each customer to sign an arbitration agreement as part of the account opening process B: Each member firm can require each customer to sign an arbitration agreement as part of the account opening process C: Industry arbitration is preferred over litigation as a means of settling disputes because it is cheaper and faster D: Each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 30 days of account opening

A: FINRA requires each customer to sign an arbitration agreement as part of the account opening process

Under the rules of the Options Exchanges, if a customer's financial condition changes materially, then which of the following will be amended? A: New Account Form and Options Agreement only B: New Account Form only C: Options Disclosure Document only D: New Account Form and Margin Agreement only

A: New Account Form and Options Agreement only

A customer must be sent which of the following at, or prior to, opening an options account? A: Options Disclosure Document B: Options Agreement C: Loan Consent Agreement D: Chicago Board Options Exchange manual

A: Options Disclosure Document

A copy of the member firm's Business Continuity Plan must be provided to each customer: A: at account opening B: on each trade confirmation C: on each account statement D: every 36 months

A: at account opening

When opening an account over the phone to trade stocks and options, all of the following signatures are needed on the new account form(s) EXCEPT: A: customer signature B: registered representative signature C: general principal signature D: registered options principal signature

A: customer signature

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

A customer must sign and return which of the following documents within 15 days after opening an options account? A: Options Disclosure Document B: Options Agreement C: New Account Form D: Loan Consent Agreement

B: Options Agreement

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. Which statement is TRUE about this? A: The representative can do this without taking any further action 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 representative must open a separate options account for the customer and segregate the resulting naked options positions

B: The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction

A new customer has come into your firm to open an account. He tells you that he is 21 years old, recently graduated from college and that he is looking for a job. He is contacting you because he recently inherited $250,000 and wants to invest it for growth and income. When you are completing the new account information, you ask him for his street address and he tells you that he was just evicted from his apartment and has moved into a long-stay hotel until he finds a new place to live. Which statement is BEST about this situation? A: The address to be used for Customer Identification purposes is the client's last known residence address B: The address to be used for Customer Identification purposes is the address of a close relative C: The address to be used for Customer Identification purposes is a P.O. Box where he is receiving mail D: The account can only be opened as a cash account without any street address being required

B: The address to be used for Customer Identification purposes is the address of a close relative

Information about SIPC, must be made available to customers: A: at account opening only B: at account opening only and annually thereafter C: on each account statement D: on each trade confirmation

B: at account opening only and annually thereafter -securities investment protection corporation

A customer has an existing cash account that holds many different positions in blue chip stocks. The customer has an investment objective of moderate growth and income. The customer contacts his representative, stating that "I think the market will be flat for a while, but I don't want to see my portfolio return drop." The registered representative recommends that the customer sell covered calls against some of the stocks held in the customer account. The representative: A: can do so without any additional documentation as long as options positions taken do not exceed 15% of account value B: cannot do so unless the account is qualified to trade options C: cannot do so unless the stock positions are transferred to a margin account and the customer signs a margin agreement D: can do so without restriction because covered call writing is a conservative strategy that is permitted in a cash account

B: cannot do so unless the account is qualified to trade options

An elderly customer normally comes into your branch office each week on Monday to discuss his account and place trades. This week, he comes in on Wednesday, looking confused and disoriented. However, the trade that he wishes to place conforms to his normal investment practice. The representative should: A: place the trade for the customer, since it conforms with his normal investment practice B: contact the firm's compliance department for guidance on how to handle the situation C: contact the customer's next of kin to discuss the situation D: refuse the order from the customer

B: contact the firm's compliance department for guidance on how to handle the situation

The requirement for independent verification of a customer's identity when opening an account can be satisfied by examining a copy of the customer's: A: birth certificate B: driver's license C: employer ID D: latest federal tax return

B: driver's license

Under FINRA rules, if a member suspects that a senior citizen is being financially exploited, a temporary hold may be placed on disbursements from the account for up to: A: 5 business days B: 10 business days C: 15 business days D: 20 business days

C: 15 business days

At what age does a natural person have the legal capacity to open an individual account at a brokerage firm? A: 15 B: 16 C: 18 D: 25

C: 18

Which statement about SEC rules covering customer account information is FALSE? A: The customer must be sent a copy of the collected information for verification within 30 days of account opening B: Collected suitability information must be sent for verification, including income and net worth C: CIP (Customer Identification Procedures) information must be sent for verification, including date of birth and social security number D: The customer account profile must be resent to the customer every 36 months for reverification

C: CIP (Customer Identification Procedures) information must be sent for verification, including date of birth and social security number

If a customer does not return a signed options agreement, which statement is TRUE? A: The account must be frozen for 90 days B: Opening transactions are permitted in the account C: Closing transactions are permitted in the account D: Payment in advance is required for any further transactions

C: Closing transactions are permitted in the account

To make a suitable recommendation, the registered representative must have sufficient knowledge of the customer's financial background. Regarding recommendations to a customer, which statement is TRUE under MSRB rules? A: If the customer refuses to disclose sufficient financial information, recommendations are allowed if the recommended security is investment grade B: If the customer refuses to disclose sufficient financial information, only recommendations being made to other customers are permitted C: If the customer refuses to disclose sufficient financial information, recommendations are not permitted D: If the customer insists upon performing a trade that is deemed to be unsuitable, the registered representative must refuse the trade

C: If the customer refuses to disclose sufficient financial information, recommendations are not permitted

The FINRA suitability rule requires all of the following EXCEPT: A: Before a product or strategy can be recommended, a reasonable basis suitability determination must be completed, evaluating the investment's features, returns, costs and risks B: Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless it is determined that the investment is suitable, based on that client's new account profile C: Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless the registered representative has completed a CE (Continuing Education) program on that investment D: Before a product or strategy can be recommended to a customer, it must be determined that the customer has the ability to meet the financial commitment required by the recommendation

C: Once a reasonable basis suitability determination has been completed, the product cannot be recommended to a client unless the registered representative has completed a CE (Continuing Education) program on that investment

Approval of new accounts for MSRB member firms CANNOT be performed by the: A: Branch Office Manager B: Municipal Securities Principal C: Registered Representative D: General Principal

C: Registered Representative

All of the following are needed to open a cash account for a customer EXCEPT: A: Customer tax I.D. number B: Name of employer C: Signature of customer D: Customer address

C: Signature of customer

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. Which statement is FALSE about this? A: The customer must be sent a new Options Agreement which must be signed and returned within 15 days B: The Registered Options Principal must reapprove the account for naked options writing C: The customer must cross-guarantee the account because of the increased risk level D: The "Special Statement for Uncovered Options Writers" must be provided before executing the transaction

C: The customer must cross-guarantee the account because of the increased risk level

An elderly client has a $400,000 portfolio that is conservatively invested in blue chip stocks and government bonds. He calls his representative and tells him that he wants to liquidate the entire portfolio and buy growth stocks. His son also has an account serviced by the same representative, so the representative calls the son to ask him about how his father is doing, to which the son responds: "Dad has not been himself lately." What step should the representative take? A: The representative should follow the customer's instructions, liquidate the portfolio, and buy growth stocks B: The representative should refuse to follow the customer's instructions C: The representative should contact the client and explain the risks inherent in the customer's strategy D: The representative should contact compliance and ask them to file a SAR

C: The representative should contact the client and explain the risks inherent in the customer's strategy

An 80-year old customer with an existing individual account comes into a branch office and tells his representative that: "My son has been telling me that I need to give him a power of attorney over my account because of my advanced age, and I want to keep him happy and keep him from putting me in a retirement home." What should the representative do? A: The representative should give the customer a power of attorney form, naming the son as attorney over the account, and have the customer sign the form B: The representative should contact the son and get permission to have the customer sign a power of attorney C: The representative should escalate the matter to the branch manager or compliance department of the firm D: The representative should freeze the account until it can be determined that the customer is not mentally incapacitated

C: The representative should escalate the matter to the branch manager or compliance department of the firm

A representative meets a potential client at a convention. The client is interested in an investment giving life-long income, and the representative recommends a variable annuity contract. The customer opens an account and completes the purchase, but 30 days later, the customer calls the representative, telling him that he is not happy and he wants to move to another firm. What action should the representative take? A: The representative should recommend another variable annuity to the client that better meets the customer's needs B: The representative should file a SAR report about the customer C: The representative should talk to the manager to determine if there was a Know Your Customer violation D: The representative should offer the customer a full refund of his investment

C: The representative should talk to the manager to determine if there was a Know Your Customer violation -new client that is met at a convention

Under FINRA rules, if a member suspects that a senior citizen is being financially exploited: A: a temporary hold may be placed on disbursements from the account for up to 10 business days B: a temporary hold may be placed on disbursements from the account for up to 25 business days C: any hold placed on the account, if supported by the member's review of the situation, can be extended for another 10 business days D: any hold placed on the account, if supported by the member's review of the situation, can be extended for another 15 business days

C: any hold placed on the account, if supported by the member's review of the situation, can be extended for another 10 business days

When opening of a joint account for a husband and wife the firm should obtain the social security number of: A: the husband B: the wife C: both owners D: the owner with the higher tax bracket

C: both owners

A 35-year old customer in the 15% tax bracket tells her representative that she wants to buy a tax-sheltered investment. The representative explains that this is not suitable, but the customer insists that the representative execute the trade. The representative should: A: refuse the order B: submit the order to FINRA for approval prior to executing the order C: execute the order, but note his or her exception in the customer account file D: close the account

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

Under MSRB rules, a registered representative may perform a municipal securities transaction for a customer that he or she believes is unsuitable: A: only with the approval of the MSRB B: only with the approval of the principal C: only at the specific direction of the customer D: under no circumstances

C: only at the specific direction of the customer

If a member firm believes that a senior citizen with an account at the firm is being financially exploited, the member would contact the client's A: attorney B: closest relative C: trusted contact person D: registered representative

C: trusted contact person

All of the following information is needed to open a new cash account for a customer EXCEPT: A: the citizenship of the customer B: whether the customer is an officer or director of a publicly held company C: whether the customer owns the stock of another publicly traded broker-dealer D: whether the customer is an employee of another broker-dealer

C: whether the customer owns the stock of another publicly traded broker-dealer

All of the following information is needed to open a new cash account EXCEPT: A: Customer name B: Customer birthdate C: Customer citizenship D: A list of external brokerage account holding

D: A list of external brokerage account holding

A social security number or tax identification number is needed to open a securities account for: A: a U.S. individual only B: both U.S. and foreign individuals only C: U.S. individuals and corporations only D: All of the above

D: All of the above

To determine the suitability of recommendations made to a customer, inquiry should be made about which of the following? A: Income and Net Worth only B: Investment objective and experience only C: 401(k) balance, Net Worth and Income only D: All of the above

D: All of the above

Prior to opening an options account, which of the following steps is NOT required? A: Completing the new account form B: Approving the first transaction in the account C: Receiving the signed options agreement from the customer D: Delivering the options disclosure document to the customer

D: Delivering the options disclosure document to the customer

In order to adequately assess the suitability of a recommendation to a customer that is a senior citizen, the member should make reasonable efforts to obtain all of the following information about the customer EXCEPT: A: Age B: Life stage C: Liquidity needs D: General health status

D: General health status

Under FINRA rules, to ascertain which investments are suitable for a customer, the registered representative would inquire about all of the following EXCEPT: A: Investment objective B: Financial status C: Tax status D: Health status

D: Health status

In order to open a new account for an individual customer, which information is NOT required on the new account form? A: Customer Name B: Residence Address C: Date of Birth D: Highest school grade level completed

D: Highest school grade level completed

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, all of the following would be considered EXCEPT: A: The state in which the customer resides B: The components of the customer's existing portfolio C: Whether the customer is subject to the alternative minimum tax D: The cash balance in the customer's IRA available to invest

D: The cash balance in the customer's IRA available to invest

To open an options account, inquiry is NOT required regarding: A: Investment objective B: Investment experience C: Financial situation D: The name of other firms where the customer has accounts

D: The name of other firms where the customer has accounts

A registered representative is soliciting a customer to purchase a security that has just been placed on his firm's "recommended" list, and which the representative feels is suitable for that customer. After discussing the recommendation, the customer is still resisting making a purchase. Which action by the registered representative is appropriate? A: The registered representative should have the branch manager contact the customer to discuss the recommendation B: The registered representative should continue to attempt to overcome the customer's objections C: The registered representative should discuss the recommendation with anyone else who has signing authority on the account D: The registered representative should accede to the customer's wishes

D: The registered representative should accede to the customer's wishes

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

A registered representative has been prospecting for new customers in neighboring states, and has contacted an individual who wishes to open an account with a $25,000 stock purchase. The customer is located 500 miles away from the representative's branch office. In order to open the account: A: the customer must physically appear at the registered representative's branch office with government issued identification documents such as a passport or driver's license B: the registered representative must visit the customer's residence and obtain a copy of government issued identification documents such as a passport or driver's license C: no physical contact is required between the customer and the registered representative, but the branch manager must speak to the customer prior to account opening and verify the account information provided by the customer D: no physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customer's identity by comparing information provided by the customer to a public database

D: no physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customer's identity by comparing information provided by the customer to a public database

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

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