Progress Exam 1A & 1B
A durable power of attorney: Gives someone else the authority to manage the grantor's finances if that person becomes incapacitated Generally may not be revoked by the grantor May take the place of a will in many states Is automatically revoked if the grantor is declared incompetent
A A durable power of attorney gives someone else the power to manage the grantor's financial affairs if that individual becomes incapacitated. A regular power of attorney terminates if the grantor becomes incapacitated. An RR would need to have a durable power of attorney in order to exercise discretion if the client becomes incapacitated.
Duplicate account statements would be required under which TWO of the following circumstances? The customer is an employee of FINRA The customer is an insider of an SEC reporting company The customer is an employee of another broker-dealer The customer is a portfolio manager I and III I and IV II and III II and IV
A A member firm is required to send duplicate account statements to FINRA when a customer of the firm is an employee of FINRA. In addition, upon written request by the employing member firm, duplicate account statements must be sent if an employee of a member firm opens an account at another member, investment adviser, bank, or other financial institution. There is no requirement to send duplicate statements if the customer is an employee at a financial institution or an SEC reporting company.
A registered representative holding limited discretionary authority over a customer's account may: Buy or sell securities in the account without consulting the customer Withdraw money from the account Receive a fee for using his discretion in trading the account Borrow assets from the customer's account
A A registered representative holding limited discretionary authority over a customer's account may buy or sell securities in the account without consulting the customer. Only full discretionary authority allows a registered representative to withdraw money from a client's account. A registered representative may not receive a fee for using his discretion in trading a customer's account. Borrowing client assets is never allowed.
If SIPC does not cover in full a customer's account in a brokerage firm that has gone bankrupt, the investor is a: General creditor Secured creditor Preferred creditor Guaranteed creditor
A If SIPC does not cover a client's account in a brokerage firm that has gone bankrupt, the client is a general creditor. The client ranks equally with all other general creditors.
The correct order for the transfer of an account from one firm to another is: The carrying firm validates the transfer instructions The customer is informed of any nontransferable securities The carrying firm sends the customer's securities to the receiving firm The customer provides a written transfer request to the receiving firm IV, I, II, III IV, I, III, II I, IV, II, III I, IV, III, II
A If a customer wishes to transfer an account from one member firm (the carrying firm) to another member firm (the receiving firm), the customer must give written instructions to the receiving firm. The receiving firm must submit the transfer request to the carrying firm immediately upon receipt from the customer, and the carrying firm must either validate the instructions or take exception to the transfer within one business day. For assets that are not transferable, the carrying firm must request from the customer instructions as to what course of action to take, such as liquidation or retention by the carrying firm. Within three business days following the validation of a transfer instruction, the carrying member must complete the transfer of the account to the receiving member. Securities are typically transferred by the National Securities Clearing Corporation (NSCC), using the Automated Customer Account Transfer Service (ACATS).
The number of custodians allowed for each minor under the Uniform Gifts to Minors Act may not be more than: One Two Four Five
A Only one custodian is allowed for each minor under the Uniform Gifts to Minors Act.
Relative to a custodian account, which TWO of the following statements are TRUE? The minor is responsible for tax consequences The custodian is responsible for tax consequences Income generated in the account is taxed as it is received Income generated in the account is taxed when the minor becomes an adult I and III I and IV II and III II and IV
A The minor is responsible for all tax consequences in the account. Income is taxed as it is received, not when the minor becomes an adult.
A customer gives his registered representative the following instructions. Buy 100 shares of General Motors whenever you think the price is right. Under current regulations, the order: May be accepted and may be executed anytime that day Must be marked discretionary and approved by a branch manager May not be accepted Must be executed immediately
A The order may be accepted and is not a discretionary order requiring written power of attorney. The customer told the registered representative which stock to buy (GM) and the amount (100 shares). The phrase whenever you think the price is right means the registered representative may use her judgement as to when the stock should be purchased. The order does not need to be executed immediately, but must be executed sometime during the day it was received.
A senior investor with a brokerage account at a firm appears disoriented and is showing signs of diminished capacity. Which TWO of the following choices are the BEST courses of action for the RR to take? Discuss this situation with a supervisor Execute only unsolicited transactions for the client Ask the client to bring a relative to a meeting at the firm Do not take any action since it would violate Regulation SP I and III I and IV II and III II and IV
A When servicing the account of a senior investor, an RR should be aware of the common signs of diminished capacity or dementia. These signs include difficulty speaking, memory loss, poor judgment, and being confused and disoriented. For RRs, some of the recommended actions are to discuss the situation with either their immediate supervisor (principal) or their firm's legal/compliance department or to ask the client to bring a close relative (family member) or friend to a meeting. In some cases, the senior investor may have granted trading authorization or durable power of attorney to a relative. If this is the case, an RR may use the written documentation that is on file to contact this person.
A Suspicious Activity Report (SAR) should be filed: Only in the event that the firm has actual knowledge that the client is laundering money If a transaction exceeds $5,000 and the firm suspects illegal activity Only for transactions of more than $10,000 Only for transactions with parties on the OFAC list
B A firm must file an SAR whenever a transaction (or a group of transactions) equals or exceeds $5,000 and the firm suspects any of the following. The client is violating federal criminal laws. The transaction involves funds related to illegal activity. The transaction is designed as a structural transaction to evade the reporting requirements The transaction has no apparent business or other legitimate purpose and the broker-dealer cannot determine a reasonable explanation after examining all the available facts and circumstances surrounding the transaction.
Which of the following statements regarding the privacy notice of a broker-dealer is NOT TRUE? Customers must receive an updated privacy notice annually A privacy notice does not need to be sent to a consumer A privacy notice must be provided to all customers at the time a relationship is established with the firm Clients may opt out from having their information shared with third parties
B Customers must receive a privacy notice. A consumer (anyone who has not yet established a relationship with the firm) must be provided with a privacy notice prior to disclosing any nonpublic personal information to any nonaffiliated third party.
According to AML procedures, which TWO of the following items is a member firm required to obtain when opening a new account for a non-U.S. citizen? Name of current employer Passport number and country of issuance Current address Telephone number I and III II and III I and IV II and IV
B If a non-U.S. citizen wants to open a new account, the member firm is required to obtain certain information as part of its AML procedures under its customer identification program (CIP). For non-U.S. citizens, the firm must obtain the client's name, address, date of birth and one of the following: passport and country of issuance, taxpayer identification number, or any other government-issued document with a photograph. Employment information and telephone number are usually obtained by the member firm but are not required.
A registered representative would NOT need to notify his employer to open an account at another member firm if he effects transactions in which of the following securities? Investment-grade, nonconvertible bonds An actively managed emerging markets mutual fund An exchange-traded fund (ETF) that is indexed to the S&P 500 A real estate investment trust listed on the NYSE
B Normally, an employee of a FINRA member firm who wishes to open an account at another member firm must notify his firm and the executing firm, in writing, prior to opening a securities account. An exception is made if the employee effects transactions only in mutual funds, unit investment trusts, and variable annuities.
When is the Regulatory Element of Continuing Education required to be completed by a registered representative? On the second anniversary of initial registration On the third anniversary of initial registration Every two years thereafter Every three years thereafter I and III only I and IV only II and III only II and IV only
B Registered representatives are required to participate in Regulatory Element training on the second anniversary of their initial registration, and every three years thereafter.
A customer has $535,000 of securities and $135,000 of cash in his account. If the firm were to go bankrupt, what amount would SIPC cover? $535,000 securities and $135,000 cash $365,000 securities and $135,000 cash $535,000 securities and no cash $400,000 securities and $135,000 cash
B SIPC provides protection to a maximum of $500,000, of which $250,000 may be used for cash. In this example, the customer has exceeded SIPC coverage and would become a general creditor (for the excess) of the firm.
A brokerage firm is holding $600,000 of securities for a customer. The securities are registered in the name of the customer. If the firm is being liquidated by SIPC, the customer would: Be insured for $500,000 of securities Receive the entire $600,000 of securities Be insured for $100,000 of securities Lose the entire $600,000
B Securities registered in the names of customers are returned to the appropriate individuals in full.
A registered representative has purchased two tickets to attend a basketball game with a client. If the tickets cost $85 each, which of the following statements is NOT TRUE? Under FINRA rules, this is defined as entertainment If the registered representative does not attend the game and gives one ticket to the client, this is a violation If the registered representative does not attend the game and gives both tickets to the client, this is a violation This does not require approval by a principal of the firm
B The FINRA gift rule states that no member or person associated with a member shall, directly or indirectly, give or permit to be given anything of value, including gratuities, in excess of one hundred dollars per individual per year to any person, principal, proprietor, employee, agent or representative of another person where such payment or gratuity is in relation to the business of the employer of the recipient of the payment or gratuity. The interpretation refers to an RR giving or receiving gifts in exchange for business. In order for the activity to be considered an expense, the associated person employed by the broker-dealer must attend the event with the client. This type of activity is defined as an expense. Since one ticket is valued at $85, it may be given to the client. Two tickets given to the client would exceed the $100 limit. Approval by a principal is not required. However, member firms should have this type of activity included in their policy and procedures manuals.
Which of the following statements is NOT TRUE regarding discretionary accounts? All discretionary orders must be marked discretionary A written power of attorney must be updated every three years Orders need not be verbally approved by the customer prior to execution Orders must not be excessive in terms of size or frequency
B When transacting business for a discretionary account, the registered representative must have written power of attorney (POA) authorizing him to act for the customer. It does not need to be updated. A POA may only be revoked by either the death of the customer or in writing by the customer. Each order in which the registered representative exercises discretion must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency in order to churn the account to generate commissions. The registered representative makes the investment decisions and does not need to receive the customer's approval for each order being executed.
Which TWO of the following statements are TRUE when opening new customer accounts? A P.O. box may be shown as the customer's address on the new account form A street address must be reflected on the new account form Customer correspondence may be sent to a P.O. box Customer correspondence may not be sent to a P.O. box I and III I and IV II and III II and IV
C A customer must list a legal street address on the new account form. However, a broker-dealer is allowed to mail correspondence, including account statements, to a P.O. box at the customer's request.
Under industry rules, the final approval to open a new account is given by a(n): Registered representative Operations manager Partner or principal Supervisor
C Final approval must be given by a partner or principal of the firm. Not every supervisor is a principal and only a principal can approve a customer account.
If a client's account is inactive, how often does a statement need to be mailed? Weekly Monthly Quarterly Prior to the completion of the next transaction
C If an account is inactive, a statement is mailed to the client quarterly. Clients with active accounts normally receive monthly statements.
A registered representative purchased two tickets to a concert for which he paid $175 per ticket. If the face value of the tickets is $95 per ticket, the RR may: Give both tickets to a customer Give one ticket to a customer Not give any tickets to a customer Give two tickets to two different customers
C Member firm personnel may not give, or permit to be given, a gift of material value exceeding $100 per recipient per year to personnel employed by another member firm. The gifts should be valued at the higher of the cost or market value. If tickets to the concert have a face value of $95, but the tickets were purchased at a value of $175, the higher value would be used. Since the value of each ticket exceeds $100, none of the tickets may be given to the customer. If the RR attended the event with the customer, it would be a business expense and not a gift.
The Securities Investor Protection Corporation (SIPC) does not insure a: Margin account Joint account Commodities account Custodian account
C SIPC insures all the accounts listed except a commodities account. Commodities are not securities and, therefore, are not covered by SIPC.
A brokerage firm is holding $850,000 of securities for a customer. The securities are registered in the name of the customer. If the firm was being liquidated by SIPC, the customer would: Be insured for $250,000 of securities Receive $500,000 of securities Receive the entire value of the securities Lose the entire value of the securities
C Securities registered in the names of customers are not part of SIPC coverage and are returned to the appropriate individuals regardless of the amount.
Which of the following transactions may NOT be accomplished in a cash account? Covered call or put writing The sale of preferred stock Selling short The purchase of options
C Selling short may take place only in a margin account.
An investor has taken the following gains and losses during the tax year: a $19,000 gain, and a $24,000 loss. What amount of ordinary income may the investor offset this year? 0 $2,000 $3,000 $5,000
C The maximum capital loss an investor may write off against ordinary income in one tax year is $3,000. The balance of the $2,000 capital loss must be carried forward to the next year.
A customer wants to open a cash account. What information is NOT required on the new account form? The name of the registered representative responsible for the account Whether the customer is of legal age The customer's signature The branch manager's approval
C The name of the registered representative and the signature (approval) of the branch office manager must always be included on a new account form. The customer's signature is required for a margin account but not for a cash account. The registered representative must determine whether the customer is of legal age.
Which of the following statements is TRUE concerning custodian accounts? A donor may give gifts of cash only A donor may give gifts of securities only A donor may give gifts of cash and securities An individual may not be both the custodian and donor
C The only true statement given about custodian accounts is a donor may give gifts of cash and securities.
The primary purpose of a self-regulatory organization (SRO) is to: Establish market prices for securities traded in the market they regulate Press criminal charges in regard to violations of securities laws Promote fair and equitable trading practices Insure the solvency of broker-dealers and other market participants
C The primary purpose of SROs (e.g., the exchanges, FINRA, the MSRB) is to promote fair and equitable trading practices. They do not establish market prices. The SEC may recommend that charges be pressed for violations of securities laws.
A customer has a nondiscretionary account. The customer instructs her registered representative to purchase 500 shares of a specific stock. The RR is given permission to execute the stock when he feels she can get the best price. Which of the following actions is MOST appropriate for the registered representative to take? Cancel the order if the stock does not trade at a good price Wait until tomorrow's trading session and see if she can get a better price Purchase the stock before the end of the day Reject the order
C This is a nondiscretionary account and, therefore, no shares may be purchased unless the customer gives the broker-dealer an order to purchase the security. In some cases, a registered representative may accept the customer's verbal authorization to make certain decisions without it being considered discretionary. If a customer (1) selects the specific security, (2) decides whether to buy or sell the security, and (3) specifies the number of shares, leaving discretion only as to time and/or price, it would not be considered a discretionary order and written authorization would not be required. The customer mentioned all three of these details. This time and price discretion concerning the order is limited to the business day the order was placed and, therefore, the order must be filled before the end of the day. The client is, however, permitted to give her RR written instructions for a longer period provided it is signed and dated by the customer, although this does not occur in this question's scenario. There is no requirement to have the order preapproved by a principal.
Which of the following choices is a benefit of an account that is designated Transfer on Death (TOD)? The ability for joint owners to each trade the account The avoidance of estate taxes The avoidance of probate costs The opportunity for proportional ownership
C Transfer on Death is not a designation for a joint account, but is rather the instruction to transfer ownership of an account to a beneficiary upon the death of the account holder. Although such a designation would avoid probate, estate taxes may still be levied against the decedent's estate.
Which of the following statements is NOT TRUE regarding discretionary accounts? All discretionary orders must be marked discretionary A written power of attorney must be on file Orders must be approved verbally by the customer prior to execution Orders must not be excessive in terms of size or frequency
C When transacting business for a discretionary account, the registered representative must have written power of attorney authorizing her to act for the customer. Each order in which the registered representative exercises discretion must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency (in order to churn the account to generate commissions). The registered representative makes the investment decisions and does not need to receive the customer's approval for each order being executed.
If a broker-dealer will be holding a customer's mail, all of the following is required, EXCEPT: The customer must provide written instructions that include the time-period during which the mail will be held The firm must provide written disclosures to the customer regarding alternative methods through which the account may be monitored The firm is required at reasonable intervals, to verify the customer's instructions still apply The customer's instructions must include a third party who will be receiving his mail that includes payments to the customer
D A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held. If the period exceeds three consecutive months, the customer's instructions must also include a valid reason for the request. In addition, the firm must provide written disclosures to the customer regarding alternative methods through which the account may be monitored and at reasonable intervals verify that the customer's instructions still apply.
A member firm is requested to open an account for a clerical person employed by another member firm. Which of the following statements is TRUE? The account may be opened, but the clerical person may not engage in any transactions in securities recommended by his firm The member firm is required to give notice to FINRA The account may not be opened under any circumstances If requested, the member firm must send duplicate confirmations and/or statements to the clerical person's employing member firm
D A member firm that wishes to open an account for an employee of another member firm, (i.e., a clerical person, a registered representative or a principal) is required to notify that person's employer. Also, if requested, the employer must be sent duplicate statements and confirmations in regard to the account. The member firm opening the account (the executing firm) is required to notify the employee that notice will be sent to his employer.
A registered representative who wishes to have outside employment must notify: FINRA The SEC The MSRB The representative's firm
D A registered representative must notify his firm (employer).
Which of the following statements is NOT TRUE of discretionary accounts? Accounts must be approved by a principal Orders must be reviewed on the day they are entered Written power of attorney signed by the customer must be kept on file by the firm Orders must be confirmed with the customer before being entered
D All of the choices listed about discretionary accounts are true except orders must be confirmed with the customer before being entered.
What information can be found on a customer's confirmation? Whether the firm acted as principal Whether the firm acted as the customer's agent Whether the firm acted for a third party Whether the firm is a bona fide market maker in the security I and II only I and IV only II and III only I, II, III, and IV
D All of the items listed would be found on a customer's confirmation. An indication that the firm acted for a third party is given to the customer if requested. This information is detailed on the back of the confirmation.
Which of the following statements is NOT TRUE regarding the Uniform Gifts to Minors Act? Only one custodian is allowed for each account The minor is responsible for all taxes due on dividends and interest received from securities held in the account Only an adult may be a custodian Securities must be held in the name of the brokerage firm
D All the choices regarding the Uniform Gifts to Minors Act are true except securities must be held in the name of the brokerage firm (street name). All securities are registered in the name of the custodian for the minor.
A husband and wife have a joint account. If the husband instructed his RR to sell securities and send a check, the check could be made payable to: The husband only The wife only Either the husband or the wife The husband and wife jointly
D An order may be accepted from either party to a joint account, but the payment check may only be drawn in joint names (as the account is titled).
Which of the following employees of a broker-dealer must provide written notification to her employer in order to open a securities account at another firm? A registered representative A principal A secretary A janitor I and II only III and IV only I, II, and III only I, II, III, and IV
D Any employee of a broker-dealer must provide written notification to her employer in order to open an account at another firm.
Which of the following statements is TRUE regarding numbered accounts? An account may never be identified by a number Only a cash account may be identified by a number, provided the customer's name is on file Only a margin account may be identified by a number, provided the customer's name is on file Any type of account may be identified by a number, provided the customer's name is on file
D As long as the customer's name is on file with the broker-dealer, the account may be identified by number in all other broker-dealer records.
A registered representative should update a customer's account records for a change in: Address Net worth Employer Investment objectives I and III only II and IV only I, II, and IV only I, II, III, and IV
D Customer account records should be updated whenever there is a change to the original information given.
An investor who has granted power of attorney to his son dies. The power of attorney: Remains in effect until cancelled by the executor of the estate Remains in effect until cancelled by the son Remains in effect only if the son is the sole heir to the estate Is cancelled on the death of the owner of the account
D If an individual who has granted power of attorney to another individual dies, the power of attorney automatically terminates.
Which TWO of the following organizations are NOT SROs? The MSRB SIPC FINRA The SEC I and III I and IV II and III II and IV
D Self-regulatory organizations (SROs) have been formed by the industry to promote standards of fair trade. Examples of SROs are FINRA, CBOE, Chicago Stock Exchange, and the MSRB. All rules and regulations created by SROs must be approved by the SEC, a government-sponsored agency (not an SRO) created by an act of Congress in 1934. SIPC, which insures customer accounts if a broker-dealer fails, is not considered an SRO.
Exclusions from the definition of an investment adviser are given to all of the following groups, EXCEPT: Accountants and lawyers who provide advice in a manner incidental to their profession Publishers Broker-dealers and their representatives Advisers who limit advice to corporate debt only
D The Investment Advisers Act of 1940 excludes choices (a), (b), and (c). There is no exclusion from the definition for Advisers who limit advice to corporate debt only.
A registered representative receives a sell order from his customer. When he submits the order, he accidentally transposes two of the digits in the account number and the order is processed under the wrong account. This problem is rectified: By the registered representative With a purchase of the security out of the wrong account By placing the order in an error file By the branch office manager
D The branch office manager will rectify this by correcting the account number and crediting the sale in the proper account. The order is not placed in the error file since it was properly executed, although in the wrong account. The registered representative does not rectify problems. The wrong account will not be responsible for anything related to the incorrect order.
An individual has received $500 from dividends paid on common shares of Texas Oil Company. How much of this dividend income is subject to taxation? 0 $350 $400 $500
D Under the current tax law, all dividends received by individuals are fully taxable.
Upon learning of the death of a customer, a registered representative would NOT: Cancel all outstanding orders Mark the account deceased Await instructions from the executor of the customer's estate Liquidate all positions in the account if directed to do so by any member of the customer's immediate family
D When a client dies, a registered representative should cancel all open orders immediately and mark the account deceased. She should then await instructions from the executor of the estate.
Which of the following documents is NOT needed to open a corporate margin account? A corporate charter and resolution A new account form An hypothecation agreement A trust agreement
D When a corporation opens a margin account, all of the documents listed are needed except a trust agreement. A trust agreement is needed when opening an account for a retirement plan or trust account.
Which TWO of the following statements apply when a registered representative transacts business for a discretionary account? The registered representative does not need to have written power of attorney authorizing him to act for the customer Each order must be marked discretionary Orders and transactions may be excessive in size if approved by a principal The account should be reviewed frequently by a branch office manager I and III I and IV II and III II and IV
D When transacting business for a discretionary account, the registered representative must have written power of attorney authorizing him to act for the customer. Each order must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency (in order to churn the account to generate commissions). This type of account should be reviewed frequently by a supervisory person such as a branch office manager.
