Series 7 Chapter 5

If one of your clients dies, on notification of death you should immediately: mark the account "deceased" until proper documents are received. cancel all GTC orders for the account. obtain a letter from the attorney representing the estate with instructions for transfer. obtain the names and addresses of the beneficiaries of the estate. A) I and II. B) II and III. C) III and IV. D) I and III.

Your answer, I and II., was correct!. The account's registered representative must cancel all open orders and mark the account "deceased." The firm must not permit any trades until proper documents are received from the estate representative. It is not the responsibility of the firm to contact the decedent's attorney or the beneficiaries.

If a customer wants to give a broker dealer permission to hold their mail while traveling, which of the following statements are TRUE? The customer initiates the process by written request. FINRA approval is required and granted on a case by case basis. The broker dealer may abide by the request as a courtesy to the customer in accordance with their own in-house rules regarding holding customer mail. As per FINRA's rules, once the request is made by the customer the broker dealer must abide by it. A) II and IV B) I and IV C) II and III D) I and III

Your answer, I and III, was correct!. The process must be initiated by written request on the part of the customer. Broker/dealers may abide by the written request as a courtesy extended to the customer in accordance with their own in-house rules regarding holding customer mail. There is no industry rule requiring a broker/dealer to extend this courtesy to customers.

Which of the following circumstances must be met for a fiduciary to trade options in a trust account? Special circumstances determined by the broker/dealer. The trust agreement states the trustee has the power to trade options. The trust's investment objectives are determined to be compatible with options trading. Only covered options may be traded by a fiduciary. A) I and III. B) I and IV. C) II and IV. D) II and III.

Your answer, I and III., was incorrect. The correct answer was: II and III. A fiduciary account may only trade options if expressly authorized to do so and if suitable for the beneficial owner of the account.

An agent may open a joint account for which of the following? Lee and his 13-year-old son, Tom. Mary and Kelley, two adult college roommates. Jerry and Mark, friends and partners in business for more than 20 years. Melinda and her minor nephew, John, for whom she is guardian. A) II and IV. B) I and IV. C) I and III. D) II and III.

Your answer, I and III., was incorrect. The correct answer was: II and III. Joint account owners share ownership of the account and must be adults. A minor may not legally exercise control over an account and may not be an owner of record of an account.

A customer calls his registered representative and asks that the firm hold his mail as he will be traveling for an extended period of time. Under the rules governing requests to hold mail, which of the following statements are TRUE? The request must be made in writing with a specific time period designated. For the sake of convenience, the customer can request any length of time for mail to be held. Under the rules, the broker dealer is obligated to grant any reasonable request to hold mail. During the time that mail is being held, the broker dealer must still be able to communicate with the customer. A) I and IV B) II and III C) I and III D) II and IV

Your answer, I and IV, was correct!. All requests to hold mail must be made in writing with a specific period of time designated up to three months. While requests for longer periods can be made and granted, the rules specifically prohibit it merely for the sake of convenience. Broker dealers must still be able to communicate with customers in a timely manner and are required to apprise the customer of ways in which that can or will be done. While these requests are commonly granted, doing so is not required under the rule. It is considered a courtesy that the a broker dealer may or may not accommodate.

A customer, without giving written authorization, may permit a registered representative to exercise his judgment as to: the security. the price at which to enter the order. the amount of shares. when to enter the order. A) III and IV. B) II and IV. C) I and III. D) I and II.

Your answer, II and IV., was correct!. Registered representatives may choose the price or timing of an order without having discretionary authority.

Which of the following statements are TRUE of a discretionary account? It must be approved by a principal of the firm. It must be reviewed frequently. A discretionary order may be placed once the customer has placed a power of attorney in the mail. It must be approved by the SEC. A) III and IV. B) I and II. C) I and III. D) II and IV.

Your answer, III and IV., was incorrect. The correct answer was: I and II. A new discretionary account must first be approved by a principal, orders must be approved on the day of the trade, and the account must be reviewed frequently for suitability.

Under the Uniform Transfer to Minors Act, which of the following are allowable activities? Giving an unlimited amount of cash. Giving securities. Giving no more than $5,000 in cash. Revoking a gift. A) I and IV. B) III and IV. C) I and II. D) II and III.

Your answer, III and IV., was incorrect. The correct answer was: I and II. Unlimited gifts may be put into an UTMA account. Gifts under UTMA are irrevocable and may consist of cash and/or securities.

If a customer wishes to open a cash account, who must sign the new account form? A) Only the customer B) Only the principal C) The customer, the registered representative, and the principal D) Only the registered representative

Your answer, Only the customer, was incorrect. The correct answer was: Only the principal The customer's signature nor the registered representatives signature is required to open a cash account. A principal must review and then accept the new account by signing the form.

Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done? A) Ralph must open the account and name himself as the custodian. B) Ralph must file the proper legal documents. C) Ralph must have the permission of the guardian. D) Ralph must receive legal permission to act as custodian.

Your answer, Ralph must have the permission of the guardian., was incorrect. The correct answer was: Ralph must open the account and name himself as the custodian. Under UTMA or UGMA, no special documentation is required. The account is opened in the name of the minor with the minor's Social Security number and the name of the adult listed as custodian.

Which of the following statements regarding discretionary accounts is NOT true? A) The account may not be accepted unless approved in writing by a principal of the member firm. B) The customer must approve each order before or after it is executed. C) The customer must grant written authorization to the broker/dealer or a designated individual to exercise discretion in the account. D) Each discretionary order must be reviewed promptly by a principal.

Your answer, The customer must approve each order before or after it is executed., was correct!. To establish a discretionary account, a customer must grant trading authority in writing. Furthermore, the firm must indicate its willingness to handle the account on a discretionary basis through a signature of a principal of the firm. All orders, including those for discretionary accounts, must be reviewed and endorsed promptly, but not before execution.

Two siblings have an account with your broker/dealer registered as joint tenants with rights of survivorship. Both live in a state that recognizes community property as an ownership designation. If one of the siblings dies, which of the following will occur? A) The deceased sibling's interest in the account will be divided in accordance with the community property laws of that state. B) The entire account will be liquidated and divided in accordance with the community property laws of that state. C) The deceased sibling's interest in the account will become the property of her estate. D) The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration.

Your answer, The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration., was correct!. This account, registered as joint tenants with rights of survivorship, will be handled in accordance with that account registration at the time of the death of either sibling. The deceased sibling's interest in the account will pass to the surviving sibling. Community property laws in jurisdictions that presume that type of ownership designation only applies to marital property (property acquired by the two individuals while married). Therefore, community property laws would not be applicable to siblings.

After opening a new account, how many days does a firm have to provide the customer with a copy of the account record? A) 30 B) 60 C) 45 D) 90

Your answer, 60, was incorrect. The correct answer was: 30 Member firms must provide new customers with a copy of the account record (new account form) within 30 days of opening the account; this ensures the information the firm has on file is accurate.

When a customer opens an account with a financial institution, the institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. How often must the customer receive an updated notice containing the same information? A) At least on a quarterly basis. B) At least on a semiannual basis. C) At least on a monthly basis. D) At least on an annual basis.

Your answer, At least on an annual basis., was correct!. The institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. The customer must receive the information upon opening his account and at least annually thereafter.

Who is responsible for the taxes in an UTMA account? A) Parent. B) Child. C) Donor. D) Custodian.

Your answer, Child., was correct!. UTMA and UGMA accounts are custodial accounts. They are for the benefit of the child and bear the child's Social Security number. Although in practice the taxes are usually paid by the parent or legal guardian, they are the responsibility of the beneficial minor (child).

For a trust account not seeking appreciation, which of the following would be recommended? A) Large-cap common and preferred stocks. B) Highly-rated, fixed-income securities. C) Common stock, preferred stock, and debentures. D) Common stock in small, highly profitable companies.

Your answer, Common stock in small, highly profitable companies., was incorrect. The correct answer was: Highly-rated, fixed-income securities. The only choice that is prudent and does not have a goal of appreciation is the purchase of highly rated, fixed-income securities.

In a discretionary account, due diligence requires a member to receive prior written consent before purchasing nonconventional investments (NCIs). All of the following are considered NCIs EXCEPT: A) Corporate bond funds. B) Hedge funds. C) Equity linked notes. D) Distressed corporate debt.

Your answer, Distressed corporate debt., was incorrect. The correct answer was: Corporate bond funds. Equity linked notes, debt issued by corporations that have filed for bankruptcy or are considering filing for bankruptcy, and hedge funds are all examples of investments that carry unique risks that an investor needs to be aware of. Therefore, before purchasing these types of investments in a discretionary account, proper due diligence by the broker/dealer requires that the customer provide prior written consent.

When a customer gives limited power of attorney to his registered representative, which of the following statements is TRUE? A) The customer must renew the power of attorney each year. B) The power of attorney must have the customer's signature. C) The registered representative needs written permission from the customer for each trade. D) A principal must initial each order before it is entered.

Your answer, The power of attorney must have the customer's signature., was correct!. The registered representative must have prior written authority from the customer and approval from a principal before exercising discretionary authority. Although a designated principal must review the account frequently and review and approve all trades on a daily basis, prior approval of discretionary orders is not required.

Which of the statements regarding a member firm's handling of a discretionary account is TRUE? A) Margin may not be used in a discretionary account. B) The registered representative must obtain written authorization from the customer before placing each order. . C) A principal must approve each discretionary order prior to execution. D) The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources.

Your answer, The registered representative must obtain written authorization from the customer before placing each order. ., was incorrect. The correct answer was: The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources. A discretionary account allows the registered representative to place orders without consulting the customer. It does not relieve him of the obligation to execute only suitable orders.

Which of the following documents must an existing customer sign to establish a discretionary account? A) Trading authorization. B) New account application. C) Options agreement. D) Customer's agreement.

Your answer, Trading authorization., was correct!. To establish a discretionary account, the agent must receive written authorization from the customer(s) in whose name(s) the account has been established. An existing customer has already completed the new account application and signed any required customer agreements.

All of the following could open a joint account EXCEPT: A) a father and 10-year-old son. B) Two business partners. C) a mother and 22-year-old daughter. D) a married couple.

Your answer, Two business partners., was incorrect. The correct answer was: a father and 10-year-old son. Joint accounts can only be opened between adults.

A hedge fund has contracted with your broker/dealer to handle all of its clearing functions and provide all back office support functions while it is executing transactions through numerous other broker/dealers whom your broker dealer will have agreements with. This type of account is known as A) a prime account B) a numbered account C) a joint account D) a custodial account

Your answer, a numbered account, was incorrect. The correct answer was: a prime account In a prime account, a customer contracts with one broker, the prime broker, to provide a list of support services, such as clearing and settlement of transactions, while contracting with numerous other brokers for executions services.

If a registered representative receives a call from a custodian wishing to buy shares of a new issue security, the registered representative should: A) talk the investor into buying another stock. B) refuse to accept an order. C) accept the order only if it is placed in a margin account. D) discuss and review suitability.

Your answer, accept the order only if it is placed in a margin account., was incorrect. The correct answer was: discuss and review suitability. There are no restrictions that specifically apply to the purchase of new issues in a custodial account, provided the registered representative has discussed and reviewed the suitability of the investment.

If a customer wishes to open a cash account in her name only and allow her husband to make purchases and receive checks in his name only, she must instruct her broker/dealer to open a: A) cash account with limited power of attorney. B) cash account. C) cash account with full power of attorney. D) margin account.

Your answer, cash account., was incorrect. The correct answer was: cash account with full power of attorney. For anyone other than the account owner, entering trades and withdrawing assets requires a full power of attorney. A limited power of attorney enables a nonaccount owner to enter trades but not to withdraw assets.

When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into the: A) customer's name and deliver the securities to the customer. B) brokerage firm's name and deliver the securities to the customer. C) brokerage firm's name and deliver the securities to the brokerage firm's commercial bank for safekeeping. D) customer's name and deliver the securities to the customer's bank for safekeeping.

Your answer, customer's name and deliver the securities to the customer's bank for safekeeping., was incorrect. The correct answer was: customer's name and deliver the securities to the customer. The term "transfer and ship" means to transfer the securities into the name of the customer and to ship (deliver) the securities to the customer. Hold in street name would require the securities to be transferred into the name of the broker/dealer and held in safekeeping.

A customer wishes to open a new account but refuses to provide suitability information. Under FINRA rules, the member A) may open the account but must limit recommendations to U.S. government securities. B) may open the account but may not make any recommendations. C) may open the account but must limit recommendations to investment-grade securities. D) must not open the account.

Your answer, may open the account but must limit recommendations to U.S. government securities., was incorrect. The correct answer was: may open the account but may not make any recommendations. If a customer fails to provide suitability information, the account may be opened but the member may not make any recommendations.

A customer asks her registered representative to exercise discretion over her account. To do so, the representative must do each of the following EXCEPT A) obtain written authorization from the customer B) obtain approval from FINRA C) have a principal initial each order promptly which may be before or after execution D) obtain evidence of written acceptance of the account by a registered principal of the firm

Your answer, obtain evidence of written acceptance of the account by a registered principal of the firm, was incorrect. The correct answer was: obtain approval from FINRA The requirements for a discretionary account include a written authorization from the customer, a written acceptance by a principal of the firm, and close supervision of each transaction to ensure suitable transactions in light of the customer's objectives and financial situation. No approval from FINRA is required.

All of the following characteristics describe a joint tenants with right of survivorship account EXCEPT A) mail may be sent to either party with the permission of the other party B) orders may be given only by the party listed first on the account C) checks must be made out in the name of the account D) in the event of the death of one of the tenants, the surviving party assumes control of the entire account

Your answer, orders may be given only by the party listed first on the account, was correct!. In a JTWROS account, where the surviving party assumes control of the entire account in the event of death of one of the tenants, any party named on the account may enter orders for the account. While distributions from the account must be sent in the names of all of the owners, mail could be sent to one party only with the permission of all other parties to the account.

All of the following are fiduciary accounts EXCEPT: A) guardian accounts. B) trust accounts. C) transfer on death (TOD) accounts. D) estate accounts.

Your answer, transfer on death (TOD) accounts., was correct!. A TOD account is an individual account in which, on the death of the account owner, the assets pass to a designated beneficiary.

Dividends have been received into an UGMA account. The custodian may do any of the following EXCEPT A) withdraw the dividends and place them in an UGMA savings account B) use the dividends to pay the taxes on the account C) reinvest the dividends in more stock D) withdraw the dividends as a loan from the account

Your answer, withdraw the dividends as a loan from the account, was correct!. The custodian may make investments deemed prudent and satisfy any tax obligations with the assets in the account on behalf of the minor. The custodian could not withdraw the funds as a loan from the account.