Customer Accounts Section 2: Account Basics

suitable

"Suitability" means that securities which are recommended to a customer are appropriate for that customer. To ascertain which investments are __ for the customer, FINRA states that the basis for making the recommendation are the facts disclosed by the customer about his other security holdings and financial situation and needs. Inquiry should be made as the customer's investment objective, tax status, and financial status.

D

A FINRA member firm uses a structure for its wealthy client group where a "team" of registered representatives with differing specializations services those accounts. In order to do this, the member firm must: A. have a written agreement signed by all of the representatives in the team that details the compensation sharing arrangement, if any, between the team members B. tape the phone conversations of each team member when talking to clients to maintain a record of which registered person made recommendations to that client C. maintain a record of the CRD number of each representative assigned to the account D. document the role and responsibilities of each member of the team

research report

A Supervisory Analyst (Series 16 license) writes or approves __.

options agreement

A copy of the options new account form is part of the __ that is sent to the customer, to be signed and returned within 15 days of account opening.

D

A customer has bought an options contract and after 15 days, still has not returned the signed Options Agreement. The customer is only allowed to make which of the following transactions in this account? A. opening purchase B. opening sale C. closing purchase D. closing sale

B

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

cash

A customer signature is not needed to open a __ account (thus cash accounts can be opened over the phone).

D

A married couple opens a joint margin account. The brokerage firm will send the Internal Revenue Service Form 1099 (Report of Interest and Dividends Earned) to the: A. husband only B. wife only C. husband on one report; and the wife on another report D. person whose social security number was given on the account form

A

A new customer wishes to open an options account with your firm. All of the following procedures are required prior to the first trade EXCEPT the: A. customer must complete an Options Agreement B. Registered Options Principal must approve the account before the first trade C. customer must be sent an Options Disclosure Document D. new account form must be completed

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

margin

A signature is required for __ accounts, since such an account requires that the customer pledge all the securities in the account to the brokerage firm in return for a margin loan.

I, II, III, IV

A social security number or tax identification number is needed to open a securities account for a: I U.S. resident II Foreign resident III U.S. corporation IV Foreign corporation

C

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

D

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

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

SIPC

At, or prior to, account opening, the customer must be provided with the telephone number and web site address of SIPC (which insures customer accounts against broker-dealer failure). In addition, this information must be provided to the customer ANNUALLY thereafter.

patriot act

Country of citizenship is deemed to be an essential piece of information because the __ requires that a copy of the customer's passport be obtained if an account is opened for a non-U.S. citizen and the customer must have a U.S. tax identification number.

business continuity plan

Each member firm must prepare a __ that addresses the possibility of significant business disruptions and how the member plans to respond to events of increasing severity.

arbitration

FINRA does not require __ agreements between customers and member firms. However, each member firm can require this (and usually does). FINRA does require that if a customer signs an this 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.

15, 10

FINRA permits member firms to place a temporary hold on disbursements from customer accounts if the firm suspects that the account owner is being financially exploited. The initial hold can be for up to __ business days. In addition, if the member's review of the situation supports this, the member can extend the hold for another __ business days.

closing purchases

If the Options Agreement is not signed and returned within 15 days, only __ are allowed.

Telephone number

In order to open a new account for an individual customer, all of the following information is required on the new account form EXCEPT: A. Date of birth B. Street address C. Social security number D. Telephone number

I, IV

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, 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

procedures

Officers and directors of publicly held companies are restricted under Federal law in their trades of that company's stock, so this information is essential. If a customer is employed by another financial services firm, then special __ must be followed to open the account, so this information is essential.

next of kin

One of the critical pieces of information that must be obtained at account opening is the customer's address - either residence or business street address. Also acceptable is the residence or business address of a __.

II, III, IV

Prior to opening an options account, which of the following steps must be taken? I Receiving the signed options agreement from the customer II Approving the first transaction in the account III Completing the new account form IV Delivering the options disclosure document to the customer

II, IV

Regarding arbitration agreements between member firms and customers: 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 each member firm must provide the customer with a separate copy of the arbitration agreement for signature and return within 10 days of account opening IV 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

36

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 reverification and updating (if needed) every __ months thereafter. Any collected suitability information must be included, however the rule states that customer social security number and date of birth are not required to be verified to help protect the customer from potential identity theft.

compliance

The Compliance Officer (Series 14 license) is responsible for overall __ matters and overall supervision and approval of accounts. This person typically resides in the home office.

reporting

The Financial and Operations Principal (Series 27 license) is responsible only for the firm's financial __ and back office operations.

options agreement

The __ is 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.

15

The customer has __ days after the account is opened to sign and return the options agreement.

amended

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 __ 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.

A

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

citizenship

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 __ 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.

birthdate

There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, __, 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.

margin accounts

There is no requirement for a customer signature to open a cash account. However, it is required for __. This gives firms the flexibility to open cash accounts over the phone or on-line. Customer date of birth, social security number and citizenship are all essential facts.

I, II, IV

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

articles, license

To verify the identity of a corporation that wishes to open an account, government issued identification is required to perform the match. This would take the form of the company's certified __ of incorporation (which are certified by the state); or a state issued business __.

C

Under FINRA rules, all of the following are "essential facts" needed to open a customer cash account EXCEPT: A. Customer citizenship B. Customer social security number C. Customer signature D. Customer date of birth

D

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

A

Under MSRB rules, if a customer refuses to disclose sufficient financial information to make a suitable recommendation, which statement is TRUE? A. No recommendations are permitted B. The representative can recommend only investment grade securities C. The representative can only accept "solicited" trades D. Only recommendations of municipal bond mutual funds are permitted

B

Under MSRB rules, new accounts must be approved, in writing, by the: A. Registered Representative B. Municipal Securities Principal C. Compliance Officer D. Supervisory Analyst

I, II, III, IV

Under the Know Your Customer Rule, in order to open and maintain a customer account, each registered representative must collect essential information so that the member firm can: I effectively service the customer's account; II act in accordance with any special handling instructions for the account; III understand the authority of each person acting for the customer; IV comply with applicable laws and regulations

team structure

When a firm uses a __ to service accounts (a very common practice when dealing with very wealthy clients), FINRA requires that: "if multiple individuals are assigned responsibility for the account, a record indicating the scope of their responsibilities with respect to the account" must be maintained by the member firm.

personal

When the customer fails to provide sufficient __ information on his financial background and investment objective, no recommendations can be made. Unsolicited transactions can still be accepted in the account.

I, III

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

I, II, IV

Which of the following information items are needed to open a cash account for a customer? I Customer's name and address II Customer's social security number or TIN III Customer's signature IV Customer's occupation and employer

I, II

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

C

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