UNIT 5 Checkpoint

Under FINRA rules on account transfers, the carrying member must transfer the positions in the account to the receiving member within how many business days of validation?

. 3 The carrying firm must transfer the positions within 3 business days of validation

After opening a new account, how many days does a firm have to provide the customer with a copy of the account record?

. 30 days 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

If Alpha Enterprises, Inc. wants to open a cash account, a firm must have all of the following documents on file EXCEPT A)a hypothecation agreement B)a new account form C)a copy of the corporate resolution D)a copy of the corporate charter

. A. Each cash account must have a new account form on file, and a corporation's charter must be provided as proof that the corporation exists. In addition, a resolution is needed to designate the officer(s) authorized to enter orders. A hypothecation agreement is only needed to open a margin account.

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

. A. 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

A registered representative is permitted to open all of the following customer accounts EXCEPT A. an individual account opened by the individual's spouse B. a minor's account opened by a custodian C. a corporate account opened by the designated officer D. a partnership account opened by the designated partner

. A. A representative is not permitted to open an individual account in the name of another individual, even in the name of a spouse.

Which of the following must sign a new account form? I. Principal II. Registered representative III. Customer IV. Spouse of the customer

. A. To open a cash account, only the signature of the principal accepting (approving) the account is required. For margin accounts, the signature of the customer is required on the margin agreement. The signature of the spouse is required only for a joint account.

A registered representative who receives instructions from a customer to transfer and ship will instruct the margin department to transfer ownership into A. the customer's name and deliver the securities to the customer B. the brokerage firm's name and deliver the securities to the customer C. the brokerage firm's name and deliver the securities to the brokerage firm's commercial bank for safekeeping D. the customer's name and deliver the securities to the customer's bank for safekeeping

. A. Transfer and ship means to transfer the securities into the name of the customer and 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 for safekeeping.

When a customer wishes to open an account as guardian, you would ask for A)a limited power of attorney B)a copy of the court order and other guardianship papers C)a signed customer account card, credit agreement, and loan consent D)a full power of attorney

. B. 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

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 an annual basis C)At least on a monthly basis D)At least on a semiannual basis

. B. 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.

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)buying or selling stocks without notifying the customer B)leaving order tickets unmarked regarding that orders representation of a solicited or unsolicited transaction C)shifting funds among several mutual funds within a fund family, based upon the representative's expectations for market performance D)notifying the customer periodically of the account's performance

. B. Even though the account is a discretionary one, the RR may still solicit orders. Therefore all orders entered for a discretionary account must still be marked as to whether they were solicited or unsolicited.

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)always be a limited POA D)cease to exist if the grantor of the POA dies

. B. 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

Upon being informed that one party to a tenants in common account has died, a registered representative should A)allow the surviving tenants to continue trading B)freeze the account C)transfer all of the assets to the surviving tenants D)transfer half of the assets to the survivor

. B. Freeze the account The assets of a deceased tenant in a TIC account eventually go to his estate. A registered representative first freezes the account and then awaits the proper court documents. If the account was JTWROS, trading by the surviving tenants could continue

Which of the following accounts allows the registered owner of the account to pass all or a portion of the account upon death to a named beneficiary avoiding probate? A. Partnership B. TOD C. Fiduciary D. JTWROS

. B. TOD Of the choices given, only an account opened Transfer on Death (TOD) allows the registered owner of the account to pass all or a portion of the account upon death to a named beneficiary avoiding probate because the estate is bypassed. The assets in the account however do not avoid any estate tax that might be due

If a customer would like to open a custodial UGMA or UTMA account for his nephew, a minor, the uncle A. can open the account provided the proper trust arrangements are filed first B. can open the account and name himself custodian C. needs a legal document evidencing the nephew's parents' approval of the account D. can be custodian for the account only if he is also the minor's legal guardian

. B. The donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open a custodial account, and the custodian is not required to be the minor's legal guardian.

Your customer is interested in a product that offers part principal protection like a debt instrument but has return that is partly based on the return of a single stock or a basket of stocks like an index. Such products are known as A)Real estate investment trusts (REITs) B)Treasury bonds C)Equity-linked notes (ELNs) D)Direct participation programs (DPPs)

. C. Equity-linked notes (ELNs) or Index-linked notes are debt instruments that in one variation can offer some principal protection (known as principal-protected) as well as a final payment that is based on the return of a single stock or a basket of stocks. Some ELNs are exchange traded but not all.

When a member firm opens an account for a registered representative of another member, the employer-member must be sent written notification A. Only if requested by the RR B. Within 5 business days C. Before executing an order D. Either by the rep or by the firm opening the account

. C. Before executing an order When a registered representative of one member firm opens a brokerage account with another member firm, the firm opening the account must send written notification to the registered representative's employer before the execution of any transaction.

Securities owned by a donor and given to a minor under the Uniform Gift to Minors Act become the property of the minor A. when the securities are paid for by the minor B. on the settlement date C. when the securities are registered in the custodian's name for the benefit of the minor D. when the donor decides to give the securities to the minor

. C. Transfer of securities into the custodial account completes the gift. At that time, the minor becomes the owner of the securities.

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

. C. all person who jointly own the account Suitability rules apply to all owners in a joint account.

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

. D. 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 following individuals may NOT open a joint account? A. Two spouses B. Three sisters C. Two strangers D. Parent and a minor

. D. A minor may not be a party in a joint account because a minor cannot legally exercise control over the account. A custodial account should be set up for the minor.

You have decided to open an UTMA account for your daughter and have named yourself as custodian. The child's grandparents have put the money in the account for the benefit of their granddaughter. As custodian, you are allowed to do which of the following? A)Use the funds to help pay for your son's daycare so that you can better take care of your daughter B)Return the money to the grandparents to fund their retirement needs C)Charge the account for your own tuition payments to fund a college education so that you can better provide for your daughter D)Charge the account a custodial fee and withdraw monies payable in your name for that exact amount

. D. Charge the account a custodial fee and withdraw monies payable in your name for that exact amount If you are not the donor of the monies in an UTMA account, but are the custodian, you can be paid a reasonable custodial fee.

An employee of another FINRA member broker/dealer would like to open an account with your firm. All of the following statements regarding the employee and the account are true EXCEPT A. the employer must receive duplicate copies of all trade confirmations if requested B. notification to the employing member is needed for a cash account C. notification to the employing member is needed for a margin account D. the broker/dealer holding the account must approve each transaction made by the person before entry of the order

. D. The broker/dealer has no obligation to approve every transaction before entry.

All of the following statements regarding customer accounts are true EXCEPT A. stock held in a custodial account may not be held in street name B. the customer who opens a numbered account must sign a statement attesting to ownership C. stock held under JTWROS goes to the survivor(s) in the event of the death of one of the tenants D. margin trading in a fiduciary account does not require any special consideration

. D. Trading on margin is prohibited in fiduciary accounts except with the appropriate documentation.

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

. 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

Which of the following are discretionary orders? I.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. II.A customer instructs an agent to buy 1,000 shares of ABC Corporation at a time and price determined by the agent. III.A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate. IV.A customer instructs an agent to sell 300 shares of LMN, Inc., when the agent deems the time and price appropriate.

. I and III Discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. Time and/or price alone are not discretionary decisions

If a customer wants to give a broker dealer permission to hold their mail while traveling, which of the following statements are TRUE? I.The customer initiates the process by written request. II.FINRA approval is required and granted on a case by case basis. III.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. IV.As per FINRA's rules, once the request is made by the customer the broker dealer must abide by it.

. I and III 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

Under the Uniform Practice Code, which of the following statements regarding the transfer of customer accounts are TRUE? I.Upon receipt of the ACAT Form, the carrying firm has 1 business day to validate the account positions. II.Upon receipt of the ACAT Form, the carrying firm has 3 business days to validate the account positions. III.Upon validation, the carrying firm must effect the transfer within 3 business days. IV.Upon validation, the carrying firm must effect the transfer within 4 business days

. I and III Upon receipt of the account transfer form (ACAT Form) signed by the customer, the carrying firm has 1 business day to validate the positions in the account. Upon validation, the carrying firm must freeze the account and cancel all open orders. After validation, the carrying firm has 3 business days to effect the transfer to the receiving firm

Which of the following persons are considered fiduciaries? I. Executor of an estate II. Administrator of a trust III. Custodian of an UGMA/UTMA account IV. Conservator for a legally incompetent person A. I and II B. I, II and III C. III and IV D. I, II, III and IV

. I, II, III, IV All of the persons listed have fiduciary responsibilities because of the authority with which they are entrusted.

Two friends want to open a joint account with your firm and they want equal trading authority. Each wants his portion of ownership in the account to revert to his estate if he dies. As a registered representative, you should open the account as

. Joint Tenants In Common The account should be opened as tenants in common because this type of ownership reverts the ownership in the account to the estate of a deceased tenant.

Test Points

A principal must approve every new account opened for the firm. ■ Account approval does not have to take place before the first trade; it can be done promptly after the completion of the first transaction. ■ In account transfers, the firm has one day to validate positions and three more days to complete the transfer. (Assume business days any time the number is less than 30.) ■ Cash accounts are sometimes called special cash accounts. Before the crash of 1929, margin accounts were the normal type of account opened. Because cash accounts were unusual, they were referred to as "special."