Unit 1

If a customer wishes to open a new account but declines to provide all of the financial information the member firm requests, which of the following statements are true

- If a customer refuses to provide financial information, the member firm may use whatever information is available to decide whether to open the account. - Any recommendation made to a customer must be suitable, taking into account the customer's investment objectives, financial situation, and any other relevant information. - If the information is not provided, the account may be opened, but no investment recommendations may be made.

A person wishing to roll over the proceeds of one IRA to another without tax liability would be required to meet which of the following requirements

- Rollovers must be completed within 60 days to avoid taxable consequences. - A participant must also roll over the entire amount received, which includes the amount contributed as well as any earnings that accrued in the former account.

When a customer of a broker-dealer dies, all of the following documents may be required to release the decedent's assets

- an inheritance tax waiver, - an affidavit of domicile (document is primarily used in probate court, which is the court that helps distribute the decedent's property to his or her heirs.), - a certified copy of the death certificate.

Your client informs you that a signed discretionary account form is in the mail. Before receiving the form and when you are unable to contact the client, you notice that one of her stocks is dropping sharply on adverse news. You

A discretionary order cannot be entered until the signed discretionary account form has been received.

A 50-year-old customer of your firm is leaving her employer for a new job and wishes to take control of her pension plan. You would recommend that she

A trustee-to-trustee transfer avoids the 20% withholding tax on distributions in which the account owner takes physical possession of the funds, even though the funds are reinvested in another qualified plan.

Who recieves the 1099 form in a joint account?

All accounts, joint or otherwise, have a primary Social Security number. The holder of this number receives the year-end statement (Form 1099).

A corporate profit-sharing plan must be set up under

All corporate pension and profit-sharing plans must be set up under trust agreements. A plan's trustee assumes fiduciary responsibility for the plan.

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

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.

Which of the following plans requires the use of an actuary?

As the name suggests, a defined benefit plan is one in which the benefit at retirement is defined (fixed). The annual contribution necessary to ensure sufficient funds will be available to meet the fixed retirement benefits of participants varies, so the calculation requires the services of an actuary.

All of the following statements regarding a transfer on death (TOD) account are correct except A) only those assets held at the broker-dealer are transferred. B) estate taxes are reduced. C) probate is avoided. D) the owner of the account may change beneficiaries at will.

B A TOD account avoids probate, but not estate taxes. The owner of the account may change beneficiaries and their percentages as he wishes. The TOD account is an account at a specific broker-dealer and only relates to the assets in that account.

A customer signs a trading authorization form granting written discretion over the account to the registered representative. All of the following practices are permitted except A) shifting funds among several mutual funds within a fund family, based upon the representative's expectations for market performance. B) indicating that trades in which the representative used discretion were unsolicited or solicited. C) buying or selling stocks without notifying the customer. D) notifying the customer periodically of the account's performance.

B When discretion is used in a discretionary account, order tickets must be marked accordingly.

One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is true? A) The entire withdrawal is taxable as ordinary income. B) The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. C) The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. D) The portion representing earnings from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

B All earnings, whether from deductible or nondeductible contributions, are tax deferred. Therefore, all earnings are taxable as ordinary income on withdrawal. Only the nondeductible contribution is returned tax free.

A 48-year-old Keogh plan participant who withdraws from it to remodel her home would be subject to which of the following taxes? Income tax on only the earnings portion of the withdrawal Income tax on the amount withdrawn 6% excise tax on the surplus 10% tax penalty on the amount withdrawn

B d There is a 10% tax penalty on the amount withdrawn early from a Keogh plan, and the amount withdrawn will be treated as ordinary taxable income.

When providing account disclosures to clients, all the following would require additional disclosures except A) Options accounts B) Illiquid securities accounts C) Institutional accounts D) Margin accounts

C Accounts that provide investors with additional amounts of risk over a cash account require that the investor be notified of the additional risk prior to the account opening. Options are unique in that the risk disclosure that must be provided is standardized throughout the industry. The Options Disclosure Document is used for that purpose. Prior to opening a margin account, and at least annually thereafter, a risk disclosure identifying and discussing the risks associated with a margin account must be provided to the account holders. FINRA generally requires that a firm include an estimated value for an illiquid security held in a customer's account. An institutional account in and of itself doesn't require a heightened disclosure requirement.

Roth IRAs

Contributions to Roth IRAs are made with after-tax dollars. Distributions are received tax free if the account holder is at least 59½ and has held the account for at least five years.

Who regulates regular way?

Corporate bonds and closed-end funds fall under the SEC's settlement rule, and MSRB rules require two-day settlement of municipal bond secondary transactions.

Several years after opening a brokerage account at a FINRA member firm, an individual joins another FINRA member as a research analyst. Regarding his responsibilities, which of the following is true? A) No notification is required, as the account was opened before his association with a member firm. B) The individual must notify only the employing member of the account. C) The individual must notify only the member carrying the account of his association with another member. D) The individual must notify both members of his relationship with the other.

D Before opening an account with another member, an associated person must notify both the employer member and the executing member in writing of his association. If the account was opened before his association with a member, the associated person must notify both members promptly in writing.

Distributions from 403(b) plans at retirement are

Distributions from 403(b) plans, like those from any qualified retirement plan, are 100% taxable at the recipient's current tax rate.

FINRA Rule 2111 mandates suitability obligations when making recommendations regarding which of the following?

FINRA Rule 2111 imposes the following three obligations when making a recommendation: reasonable basis suitability (recommendation must be suitable for at least some investors), customer specific suitability (recommendation must be suitable for a particular customer), and quantitative suitability (a series of recommendations must be suitable when taken together in light of a customer's investment profile).

When a customer wishes to open an account as a guardian, you would ask for

Guardianship is one of several account titles that require legal papers to open the account. Because a guardian is appointed by court order, the broker-dealer would need a copy of that court order.

Which of the following statements regarding defined benefit plans are true? Contributions are fixed. Contributions may vary. Distributions are fixed. Distributions may vary.

II and III In a defined benefit plan, the benefit at retirement is fixed (e.g., $750 a month). What varies is the amount of money required to be put into the plan each year to be able to meet the predetermined benefit.

To be treated as a nontaxable event under the IRS Tax Code, a rollover from one IRA or other qualified plan to another IRA or qualified plan must be completed by the taxpayer within

IRA rollovers must be completed within 60 calendar days. A taxpayer must reinvest the full disbursement from a voluntary or forced termination of a qualified plan or self-funded IRA with another IRA custodian (or must join another qualified plan) within the allotted 60 days; otherwise, the IRS will treat the payout as ordinary taxable income for that year.

According to FINRA Rule 2340, when meeting the account disclosure requirement for illiquid securities, which of the following best describes the account value determination

Illiquid securities are not typical nor suitable for most retail investors. However, that fact makes disclosure for those that have illiquid securities more important. Each account statement is the disclosure of those securities. They will contain a complete description of positions, balances, and activity since the previous statement. A firm that does not carry customer accounts and does not hold customer funds or securities is not a general securities member firm and is not subject to the provisions of Rule 2340. The rule states that the "per share" estimated value included on a customer account statement may be obtained from the annual report, an independent valuation service, or any other source. The rule requires that firms develop a per share estimated value on a customer account statement from data that is not more than 18 months old.

An IRA withdrawal for which of the following reasons would subject a 55-year-old individual to a penalty tax?

Immediate reinvestment in U.S. government securities The 10% penalty tax is waived for withdrawals before age 59½ for death or permanent disability, certain medical expenses, and a first-time home purchase.

What is not needed to trade a discretionary trade?

Prices and time of execution do not require discretionary authority. Ex: Buy 100 shares of ABC when the price is right

An investment adviser representative recommending investments for an IRA should give primary consideration to A) liquidity. B) risk. C) the beneficiary's tax status. D) maximum current income.

Risk is the key consideration in an IRA or other retirement plan. These accounts seek to preserve capital first and then to achieve a reasonable rate of return.

What retirement plan permits contributions to be made after the plan age 70 1/2?

Roth IRAs allow contributions to be made after age 70½, provided the participant has earned income.

Under SEC rules, the minimum equity required for prime brokerage accounts is

The SEC requires a minimum equity of $500,000 for prime brokerage accounts. The minimum net capital requirement is $1.5 million.

If an agent is assigned to an account previously handled by an agent who has since left the firm, what does the agent need to do?

The agent must verify and update client information before recommending trades. Without knowledge of the client's needs and financial profile, the agent cannot make suitable recommendations.

Who settles T+1?

U.S. government bonds occurs on the business day after the trade date.

Which of the following is a tax-qualified retirement plan for employees of nonprofit organizations?

Under Section 403(b) of the Internal Revenue Code, employees of nonprofit organizations (such as hospitals and schools) may make tax-deductible contributions from their paychecks into a retirement plan operated through their employer.

Several investors open an account in joint tenancy. Financial information is required on which of the following investors?

When a joint account is opened, financial information should be obtained on all of the account owners.

Discretion authorizes a rep to ...

choose the security, the amount of shares, or whether to buy or sell. Time and/or price alone are not discretionary decisions. Ex: A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. A customer instructs an agent to purchase as many shares of XYZ stock as the agent considers appropriate.

A customer of a firm will be leaving the country and asked his representative to watch his account. If his positions begins to decline in value, the registered representative should

talk to his manager. The registered representative may only place an order if the account owner has granted him discretionary authority.

Qualified distributions from Roth IRAs are

tax free.

Full power of attorney gives

the named third party, the designee, all of the power of the owner except the right to change the name on the account. - originate trades in the account and remove funds or securities.