Unit 05 - Practice Exam 2 <Customer Accounts>

Question 14 of 25ID: 25271 -------------------------------------------------------------------------------- A power of attorney is not required for a registered representative to choose which of the following order instructions? Security to be bought or sold Number of shares to be bought or sold Time of execution Price of execution. A) I and II. B) II and IV. C) I and III. D) III and IV.

Your answer, III and IV., was correct!. If a registered representative chooses price or timing of an order only, that order is not a discretionary order and a power of attorney is not required. The order is a not-held order. To be discretionary, the representative must choose one or more of the following: the action (buy or sell), the security, or the amount (number of shares). Reference: 5.2.1.5 in the License Exam Manual.

Mr. Jack Smith has a margin account in his own name with BR Securities, Inc. He also has a joint tenancy account with his father, John Smith. Mrs. Smith, Jack's wife, calls Joe Johnson, the registered representative who is assigned to both accounts, and instructs him to sell 100 shares of AOL from Jack's margin account. Which of the following should the registered representative do? A) Transfer the AOL to the joint account and then execute the transaction in the joint account. B) Not execute the order until he receives verbal authority from Jack, which authorizes his father to act with discretionary authority over his margin account. C) Not execute the order until he receives written authority from Jack, which authorizes his wife to act with discretionary authority over his margin account. D) Execute the transaction immediately.

Your answer, Not execute the order until he receives written authority from Jack, which authorizes his wife to act with discretionary authority over his margin account., was correct!. A registered representative may not execute a third-party order (one given by someone other than the account owner) without a signed written discretionary authorization from the account owner that has been accepted by the representative and a principal of the firm.

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

Your answer, TOD accounts., was correct!. Transfer on Death Accounts (TOD) are individual accounts with a designated beneficiary to receive account assets upon the death of the account owner. Reference: 5.2.1.4 in the License Exam Manual.

A joint account could be opened for any of the following EXCEPT: A) 3 business associates. B) a corporation. C) a parent and minor child. D) 2 partners in a limited partnership.

Your answer, a parent and minor child., was correct!. Minor children cannot be a party to any account except an UGMA or UTMA. Reference: 5.2.1.2 in the License Exam Manual.

All of the following are fiduciary accounts EXCEPT: A) estate accounts. B) trust accounts. C) transfer on death (TOD) accounts. D) guardian 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. Reference: 5.2.1.4 in the License Exam Manual.

Which of the following may NOT normally assign authorization to a third party? A) A corporation. B) An individual. C) A custodian. D) A joint account.

Your answer, A joint account., was incorrect. The correct answer was: A custodian. Assigning authorization to a third party is giving discretionary authority to someone else. The custodian of an account is the person with discretionary authority over the account. To assign the authority to someone else, unsupervised, is not allowed. Reference: 5.3.1.2 in the License Exam Manual.

Which of the following statements regarding UGMA accounts are NOT true? Only one custodian may be appointed for an UGMA account in the name of a minor. A gift under UGMA can be revoked. A custodian is liable for imprudence. Short sales are permitted in an UGMA account. A) I and IV. B) II and IV. C) I and II. D) II and III.

Your answer, II and IV., was correct!. An UGMA account is allowed only one custodian and one minor. Short selling is prohibited in UGMA accounts. Once a gift is given, it is irrevocable. The custodian has fiduciary responsibility toward the minor to invest conservatively, and the custodian is liable for imprudence in handling the entrusted funds. Reference: 5.3.1.5 in the License Exam Manual.

How must stock subscription rights be handled in a custodial account for a minor? A) The custodian cannot exercise or sell rights for the custodial account. B) The rights may be exercised or sold only if the stock is held in street name. C) The rights may be exercised or sold only if the donor is also the custodian. D) The custodian can exercise or sell rights as he deems prudent

Your answer, The custodian can exercise or sell rights as he deems prudent., was correct!. The custodian must either buy the securities or sell the rights; he cannot let the rights expire because this would not be in the best interest of the minor. The same is also true of warrants. Reference: 5.3.1.5 in the License Exam Manual.

All of the following information must be obtained from new individual customers EXCEPT: A) educational background. B) Social Security number. C) date of birth. D) residence address.

Your answer, educational background., was correct!. A customer's educational background is not required to open a new account. In the case of an account opened in the name of a business, the business address and tax identification number are required. Reference: 5.1.1 in the License Exam Manual.

An employee of a FINRA member firm wishes to open an account at another member firm. The employee opening the account must

Your answer, give prior written notice to the employing broker/dealer before the account can be opened, was correct!. Persons associated with one FINRA member firm may open securities accounts at other member firms as long as prior written notice was made to their employer broker/dealer. Prior written approval is not required. Reference: 5.1.5.1 in the License Exam Manual.

An employee of another broker/dealer would like to open an account with your firm. Under FINRA rules, all of the following statements regarding the employee and the account are true EXCEPT A) the broker/dealer holding the account must approve each transaction before entry of the order B) if the employer requests them, they must receive duplicate copies of all account transactions C) the employer need not grant prior written approval to open the account D) the employer must be notified in writing of the opening of the account Your answer, the employer need not grant prior written approval to open the account, was incorrect. The correct answer was: the broker/dealer holding the account must approve each transaction before entry of the order

FINRA rules do not require prior approval of individual transactions by the broker/dealer (at which the account has been opened). The rules do require that the employing broker/dealer be notified before the account is opened in writing and that duplicate copies of account statements and transaction confirmations be supplied if the employing BD has requested them. Prior approval of the employing BD to open the account is not required. Reference: 5.1.5.1 in the License Exam Manual.

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 monthly basis. C) At least on an annual basis. D) At least on a semiannual 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. Reference: 5.1.1.4 in the License Exam Manual.

*Under the U.S.A PATRIOT Act, which of the following is CORRECT?* A) Sharing information among financial institutions regarding suspected terrorist acts or money laundering activities is encouraged, except when such sharing violates the Gramm-Leach-Bliley Act. B) Information regarding suspected terrorist activity or money laundering may not be shared among financial institutions. C) Sharing information regarding suspected terrorist acts or money laundering activity, while not necessarily illegal, is not considered a good practice. D) Financial institutions are encouraged to share information regarding suspected terrorist acts or money laundering activity.

Your answer, Financial institutions are encouraged to share information regarding suspected terrorist acts or money laundering activity., was correct!. Under the U.S.A PATRIOT Act, financial institutions, as well as regulatory and law enforcement authorities, are encouraged to share information. A financial institution or association that transmits, receives, or shares such information for the purposes of identifying and reporting activities that may involve terrorist acts or money laundering activities is generally safe from liability. Complying with the act and sharing information about money laundering activities will not violate the privacy provisions of the Gramm-Leach-Bliley Act. Reference: 5.1.1.2 in the License Exam Manual.

Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must provide notice to customers at the time of the account opening provide notice to customers each time a transaction occurs within the account provide reasonable means for customers to opt out of such disclosures require that customers wishing to opt out send a written request with signature witnessed by a notary A) II and IV B) I and III C) II and III D) I and II

Your answer, I and III, was correct!. Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation. Reference: 5.1.1.4 in the License Exam Manual.

An unmarried couple wants to open a new account registered as joint tenants with rights of survivorship (JTWROS). Which of the following should occur? The registered representative should discuss the resulting consequences of opening an account registered as JTWROS should one party to the account die. A principal of the firm should be notified immediately so that a report can be filed with FINRA regarding the account registration. The registered representative must refuse to open the account. The registered representative may open the account. A) II and III. B) II and IV. C) I and III. D) I and IV.

Your answer, I and IV., was correct!. In an account registered JTWROS, if one party to the account dies, the deceased party's ownership interest in the account passes to the surviving tenant, rather than to the deceased party's estate. There are no rules prohibiting opening an account registered as joint tenants with rights of survivorship (JTWROS) for two unmarried persons but the registered representative should take all steps needed to be certain that the unmarried individuals understand the resulting consequences should one party to the account die. Reference: 5.2.1.2.2 in the License Exam Manual.

Which of the following are governed by the prudent investor rule? Trustee. Executor. Custodian. Registered representative who has been granted discretionary authority.

Your answer, I, II, III and IV., was correct!. The prudent investor rule applies to fiduciary accounts, or accounts in which someone is acting on someone else's behalf. In these accounts, the fiduciary must act prudently. A registered representative who has been granted discretionary authority is acting in a fiduciary capacity. Reference: 5.2.1.4.1 in the License Exam Manual.

*A customer asks his registered representative to exercise discretion over her account. To do so, the representative must: * obtain written authorization from the customer. obtain evidence of written acceptance of the account by a registered principal of the firm. have a principal initial each order promptly which may be before or after execution. effect no transaction beyond the customer's financial capability. A) I, II, III and IV. B) I and III. C) II and IV. D) I and II.

Your answer, I, II, III and IV., was correct!. The requirements for a discretionary account include a written authorization from the customer, a written acceptance by the firm, and close supervision of each transaction to ensure suitable transactions in light of the customer's objectives and financial situation. Reference: 5.2.2.1 in the License Exam Manual.

If a registered representative of a FINRA member firm wants to open an account with another member firm, which of the following statements are TRUE? The account may only be opened if the registered representative (RR) is also a principal of his employing BD. The account may be opened, but the registered representative may not engage in securities transactions that he could do through his own firm. The member firm opening the account must send duplicate confirmations to the employing member firm if the employing member firm has requested them to do so. The employing broker/dealer must receive prior written notice in order for the account to be opened but need not grant prior approval. A) I and II B) I and III C) III and IV D) II and IV

Your answer, III and IV, was correct!. The employing broker/dealer must be notified in writing but need not grant prior approval for the account to be opened. It must receive duplicate confirms and account statements if it has requested them. Reference: 5.1.5.1 in the License Exam Manual.

Which of the following is required to be maintained by financial institutions such as banks and broker/dealers (BDs) by the USA PATRIOT Act to prevent the financing of terrorist operations and money laundering? A) Specially Designated Nationals list B) Do-not-call lists C) Customer identification programs (CIPs) D) Privacy notices

Your answer, Specially Designated Nationals list, was incorrect. The correct answer was: Customer identification programs (CIPs) The USA PATRIOT Act requires financial institutions to maintain customer identification programs (CIPs) to protect against financing terrorist operations or activities and potential money laundering activities. The Office of Foreign Asset Control (OFAC) publishes and maintains the "Specially Designated Nationals" list which financial institutions utilize to determine if any customers or potential customers have been identified by OFAC as posing a terroristic threat or are involved in money laundering activities. Reference: 5.1.1.2.1 in the License Exam Manual.

Which of the following allows investors to hold securities in either the name of the issuer or their transfer agent and facilitates the transfer of those securities from the issuer or their transfer agent to an investor's broker/dealer in a secure, efficient manner? A) The Depository Trust Company through the Direct Registration System (DRS) B) The Automated Confirmation Transaction (ACT) system C) The SEC through Form S-1 issuer registration D) The Committee on Uniform Securities Identification Procedures (CUSIP)

Your answer, The Committee on Uniform Securities Identification Procedures (CUSIP), was incorrect. The correct answer was: The Depository Trust Company through the Direct Registration System (DRS) The Depository Trust Company (DTC) through the Direct Registration System (DRS) allows investors the choice of having securities registered and held in the name of the issuer or the issuer's transfer agent. It facilitates efficient and secure transfer between the issuer or transfer agent and the investor's broker/dealer. Reference: 5.1.2.1.1 in the License Exam Manual.

In administering a joint account, a member firm's responsibilities concerning suitability determination and information disclosure apply to: A) the person with trading authority for the account. B) the person whose Social Security number is on the account. C) all persons who jointly own the account. D) the person with the greatest capital contribution.

Your answer, all persons who jointly own the account., was correct!. Suitability rules apply to all owners in a joint account. Reference: 5.2.1.2 in the License Exam Manual.

If a customer wants his account designated by number, not by name, the registered representative: A) can open this account with a written statement of ownership and approval from the FINRA. B) cannot open the account in this manner. C) can open this account without additional documentation. D) can open the account with a written statement of ownership from the customer.

Your answer, can open the account with a written statement of ownership from the customer., was correct!. For numbered accounts, the customer must sign a document attesting to ownership. Reference: 5.1.4.1 in the License Exam Manual.

Your client informs you that a signed discretionary account form is in the mail. Before receiving the form and unable to contact the client, you notice that one of his stocks is dropping sharply on adverse news. You: A) can enter a discretionary order with instructions that the order is not held. B) can enter a discretionary order with written permission of a principal of the broker/dealer. C) cannot enter a discretionary order. D) can enter a discretionary order with written documentation of the situation.

Your answer, cannot enter a discretionary order., was correct!. A discretionary order cannot be entered until the signed discretionary account form has been received. Reference: 5.2.2.2 in the License Exam Manual.

With a durable power of attorney the key feature that differentiates it from other power of attorneys is that it will: A) cease to exist if the person who was given the POA dies. B) survive a declaration of mental incompetence regarding the party who has granted the durable POA. C) cease to exist if the grantor of the POA dies. D) always be a limited POA.

Your answer, survive a declaration of mental incompetence regarding the party who has granted the durable POA., was correct!. The key feature of a durable POA is that it will survive the declaration of mental incompetence on the part of the grantor. They can be either limited or full authorizations and all POAs will cease to exist if either party dies. Reference: 5.2.1.5 in the License Exam Manual.

*If a customer wants to open an account in the name of her adult son and wants the account to be approved for uncovered option writing, her request should be refused because:* A) it is a trade through and nothing is currently known about the son's investment experience. B) uncovered options can only be written in margin accounts. C) discretionary authorization may not be granted with respect to writing uncovered options. D) the opening of accounts for third parties is prohibited.

Your answer, the opening of accounts for third parties is prohibited., was correct!. An adult cannot open an account and name another adult as the beneficial owner. The type of option trades and the third party's investment experience are not relevant. Reference: 5.2.1.1 in the License Exam Manual.