Customer Accounts
Which statement is TRUE regarding joint accounts? A Orders can be given severally B Orders must be entered jointly C Accounts must be owned 50/50 D Checks can only be drawn severally
A. Any party in a joint account can enter orders. "Severally" means individually, so Choice A is a true statement. However, any checks drawn on the account must be made out to all names on the account. Joint accounts do not have to be owned 50/50 - they may have disproportionate ownership
Under FINRA rules, a registered representative must obtain and retain all of the following information relating to the customer's account EXCEPT: A Whether the customer is an administrative manager of a publicly traded company B The customer's country of citizenship C Whether the customer is employed by another FINRA member firm D Customer's financial status
A. FINRA rules require that a registered representative ascertain whether the customer is an officer, director, or 10% shareholder of a publicly traded company, since these persons are defined as "insiders" under the Securities Exchange Act of 1934, and their trading in that company's shares is restricted. Note that employees who are managers of publicly traded companies do not fall under this definition. Country of citizenship is required as well, since if the customer is a non-U.S. citizen, a copy of the customer's passport must be obtained and the customer must have a U.S. tax identification number. If the customer is employed by another FINRA member firm, special procedures must be followed to open the account. Customer financial information must be obtained to perform a suitability determination under the requirements of the "Know Your Customer" rule.
Which statement is TRUE about a minor in a custodial account under UGMA (Uniform Gifts To Minors Act) reaching legal age? A The account must be transferred into the name of the new adult B The account is transferred into the name of the new adult when requested by the custodian C The account is transferred into the name of the new adult when requested by the parents D The account must be liquidated and the proceeds paid to the new adult
A. Under UGMA, when a minor in a custodial account reaches legal age, then the new adult simply presents proof of age, along with a government issued photo I.D. and the account is transferred into that person's name onl
An officer of a trust wishes to open a margin account with your firm. This is allowed: A if the trust agreement specifically authorizes the opening of a margin account B as long as the new account form has been properly completed C if an officer of the trust provides a letter of guarantee D only with the prior approval of the branch manager
A. As a general rule fiduciary accounts must be cash accounts. A trust account will be opened as a cash account unless the agreement specifically authorizes the opening of a margin account.
OFAC: A receives Suspicious Activity Reports filed by financial institutions B creates the Specially Designated Nationals list that must be checked when opening an account for a non-U.S. citizen C monitors foreign currency inflows into the U.S. markets D enforces the provisions of the Bank Secrecy Act
B. The Department of Treasury's Office of Foreign Assets Control (OFAC) maintains a list of named countries, organizations, and individuals with whom anyone in the U.S. is prohibited from doing business. The "SDN" (Specially Designated Nationals) list includes such countries as Iran and North Korea and such organizations as the Al-Qaeda, as well as specified individuals associated with these countries and organizations. The intent is to place economic pressure on these groups by stopping U.S. investment in them. The SDN list must be checked before opening an account for a foreigner or foreign entity
A registered representative enters an order for a customer, and later notices that the wrong account number has been entered on the order ticket. The proper procedure is the: A registered representative should cancel the order and enter a new order with the proper account number B branch office manager must approve a change of account number on the existing order ticket C floor broker handling the order should be informed of the change prior to execution of the order D Purchase and Sales department must contact the customer and request reconfirmation before the order ticket can be changed
B. Any alterations to an order ticket must be approved in writing by the branch office manager. It is not appropriate for the registered representative to cancel the order and enter a new one, since the order loses its priority if canceled.
Credit can be extended on new issues: A immediately after the offering is complete B after 30 days have elapsed from the completion of the offering C after 90 days have elapsed from the completion of the offering D 1 year after the completion of the offering
B. New issues are not eligible for margin under FRB rules until 30 days have elapsed from the completion of the offering
To buy a listed stock in a margin account requires a deposit of: A 25% of the price of the transaction B 50% of the price of the transaction C 25% of the closing price of the security that day D 50% of the closing price of the security that day
B. Regulation T requires that 50% of the purchase amount, based on the price of the trade, be deposited. The closing price has no effect on the deposit amount required
All of the following individuals can legally grant a power of attorney over their accounts to a third party EXCEPT a: A 34-year old doctor who has signed up with Doctors Without Borders to work for 2 years in Madagascar B 56-year old who has been diagnosed with pancreatic cancer and is undergoing a Whipple gastric dissection procedure C 29-year old diagnosed with paranoid bipolar disorder who has been adjudicated legally incompetent D 20-year old college student who has recently inherited a large sum of money from his parents, who died unexpectedly in a car crash
C. In order to give a power of attorney, the grantor must be legally competent. Thus, the grantor cannot be a minor, since minors have no legal capacity. Additionally, the grantor cannot have been legally adjudicated as incompetent in a court of law - typically due to mental incapacitation - in which case a guardian or conservator is appointed to manage that person's affairs. An individual would consider granting a power of attorney (durable) if he or she was going overseas to a dangerous place for an extended period of time, and also if that individual was in a situation that was life threatening, such as undergoing serious surgery. The college student is an adult and can give a power of attorney to a trusted individual to manage his or her finances
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 basic rule for elderly clients that appear to be "out of it" is to escalate the matter to compliance and let them deal with it. However, a SAR is a Suspicious Activities Report, which is filed with the Federal Government if the firm is suspicious that a client is money laundering or supporting terrorism. So Choice D is incorrect! Looking at the other choices, representatives are supposed to follow client instructions, but they also have an obligation to steer customers away from doing something really stupid. The representative should neither do what the customer wants (which is stupid) or refuse to do what the customer wants. Sitting down with the customer and explaining why this is stupid appears to be the best choice. If the customer appears to be unable to understand when the registered representative is explaining why the customer's request is not a good idea, then escalate the matter to compliance and let them deal with it!
A customer is short 1,000 shares of ABC stock at $50 in a margin account. The minimum maintenance margin requirement is: A $10,000 B $12,500 C $15,000 D $25,000
C. The minimum maintenance margin requirement for short stock positions is 30% of the current market value = 30% of $50,000 = $15,000.
Which statement is TRUE regarding joint accounts? A Orders can be given severally B Orders must be entered jointly C Accounts must be owned 50/50 D Checks can only be drawn severally
C. Under the "cheap stock rule," if a customer wishes to short a stock under $5 a share, he or she must put up the greater of 100% or $2.50 per share. 100% of $2 per share x 1,000 shares = $2,000. $2.50 x 1,000 shares = $2,500. The greater amount is $2,500
A non-durable power of attorney signed by a customer: A remains in force upon the death of the customer B is irrevocable C remains in force upon the mental incapacitation of the customer D is terminated upon the mental incapacitation of the customer
D
If a customer discovers an error on his or her account statement, the error must be reported promptly to: A FINRA B the SEC C the representative that services the account D the member firm that maintains the account
D. The issue at hand is that FINRA is concerned about registered representatives that do unauthorized trading in their customer accounts to generate commission income, without the customer knowing about or authorizing the transactions. So FINRA requires that a legend be placed on customer account statements that any errors found must be reported to the member firm promptly. The person to whom the report cannot be made is the registered representative, since if he or she is effecting unauthorized trades, then the report just might get "lost."
All of the following are types of fiduciary accounts EXCEPT: A Trust Account B Custodial Account C Executor of Estate Account D Partnership Account
D. Trust accounts, Custodial accounts, Executor of Estate accounts are all types of fiduciary accounts, where a third party is designated to manage the account in the best interests of the account owner. Partnership accounts are directly managed by those partners authorized to trade in the account.
Which of the following verbal orders can be accepted from a customer without further documentation? A "Buy 100 shares of ABC stock sometime today" B "Invest $20,000 in bank stocks" C "Increase my portfolio position in ABC" D "Buy 200 shares of an auto stock"
D. Trust accounts, Custodial accounts, Executor of Estate accounts are all types of fiduciary accounts, where a third party is designated to manage the account in the best interests of the account owner. Partnership accounts are directly managed by those partners authorized to trade in the account.
To open a joint account for a husband and wife, the social security number to be used for IRS reporting purposes is: A the husband's social security number B the wife's social security number C both the husband' and wife's social security number D either the husband's or wife's social security number
D. When opening a joint account, the social security number of each participant must be obtained, but the account form will have a box for the "Primary" social security number. This is the number that will be used for IRS reporting purposes, because the IRS can only deal with one number!
A customer account holds $100,000 of Negotiable Certificates of Deposit that are maturing. The customer has inquired about alternative investments that can be made with these funds. To make a suitable recommendation, inquiry should be made as to all of the following EXCEPT: A Liquidity requirements B Tax bracket C Other investments D The name of the bank where the CD is held
D. Common sense dictates that to make any recommendation to a customer, all of the choices should be evaluated - the customer's liquidity requirements, tax bracket, and other investments. Where the CD is held is irrelevant as far as suitability is concerned
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
For a customer to move up in Level, the suitability determination must be redone and the ROP (Registered Options Principal) must reapprove the account. To move to Level 4, the customer must also be given the "Special Statement for Uncovered Options Writers."