STC Chp 1 Qs

All other considerations being equal, which of the following can likely tolerate the highest degree of risk in her portfolio? A thirty-five-year-old A fifty-five-year-old A sixty-five-year-old An eighty-five-year-old

A thirty-five-year-old Generally, the younger a person is, the more risk the person can tolerate. A thirty-five-year-old is in her prime earning years and will have many years to earn income to replace investment losses. Also, a younger person's time horizon tends to be longer.

Of the following factors, which would be the most important to consider when analyzing a client's investment portfolio who has retirement as her primary investment objective? Age Net worth Education level Previous investment history

Age When analyzing a client's existing portfolio to determine how it affects recommendations you might make, it is important to consider a client's investment objectives and the length of time available to try to meet those objectives. When retirement is the primary objective, it is very important to know the client's age. The other items mentioned are also valuable for an RR to know, but they are not as critical as knowing the client's age.

A customer's investment profile would include all of the following information, EXCEPT the: Amount of taxes paid by the customer Investment experience of the customer Risk tolerance of the customer Other investments held by the customer

Amount of taxes paid by the customer Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. The tax status is a component of an investor's investment profile, but not the amount of taxes paid.

Investors with high incomes and high net worth: Always have a high tolerance for risk Can generally tolerate more risk than investors with low incomes and low net worth Are never risk-averse Are always suitable for aggressive investments

Can generally tolerate more risk than investors with low incomes and low net worth Investors with high incomes and high net worth generally have higher risk tolerances than investors with more modest financial resources. However, financial resources are not the only elements that determine an investor's risk tolerance. Personality type, age, and other considerations also help determine a person's ability and willingness to assume risk. The courts and regulators have made it clear that an investment is not suitable simply because the client could afford to lose the money.

When a registered representative makes a recommendation to a customer involving a leveraged exchange-traded fund (ETF), he will consider which TWO of the following factors to be MOST important? The security may be recommended to at least some investors The security may be able to produce a profit over a long period The security may be able to be sold quickly The security may be a good investment for a specific customer I and III I and IV II and III II and IV

I and IV

A customer wants to purchase a speculative security in her account based on a friend's recommendation. The customer's investment objectives are growth and income, but not speculation. What's the BEST course of action for the customer's RR to take? Refuse to accept or execute the customer's order. Mark the order ticket "unsolicited," but have the order approved by a principal prior to execution. Mark the order ticket "unsolicited" and execute the order immediately. Inform the customer that this trade is not suitable; however, if the customer persists, mark the order ticket "unsolicited" and execute the transaction.

Inform the customer that this trade is not suitable; however, if the customer persists, mark the order ticket "unsolicited" and execute the transaction. The best course of action is to first inform the customer that this trade is not suitable. If the customer still wants to purchase the security, the RR should mark the order ticket "unsolicited" and execute the transaction. The RR is should not refuse to accept the order.

Which of the following is MOST important when opening an account and making a recommendation to a customer? That the recommendation is suitable That the recommendation is in the customer's best interest That the recommendation has been approved by a principal That no recommendations are made in a newly opened account until three months have elapsed

That the recommendation is in the customer's best interest In general, suitability is the primary factor when making a recommendation. However, under Regulation Best Interests (Reg BI), the most important factor is that the recommendation is in the customer's best interest. Keep in mind, some recommendations may be suitable, but they may not necessarily be in the customer's best interest.

When determining whether a recommended transaction is suitable, which of the following factors is LEAST important? The customer's age The customer's liquidity needs The level of education the customer achieved The tax status of the customer

The level of education the customer achieved Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning her investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. The educational level of the customer or what type of degree she has would be the least important factor listed.

A broker-dealer's suitability obligation is: To protect the customer against a loss A requirement by a broker-dealer to avoid conflicts of interest To make sure the recommended security fits the customer investment objectives To make sure a customer does not invest in risky securities

To make sure the recommended security fits the customer investment objectives Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. A broker-dealer may assist a customer in limiting a loss but not guarantee a customer against a loss. Conflicts of interest must be disclosed, but do not need to be avoided. A firm may recommend that a small amount of a customer's portfolio be invested in riskier securities if they fit into an overall investment strategy.