SIE Chapter 10 Customer Accounts and Compliance Considerations
A member firm generated a report that contained a review of unusual activity in customer accounts. This report must be maintained for A. 18 months B. 24 months C. 3 years D. 6 years
A. 18 months
When are broker/dealers required to file a Currency Transaction Report? A. A single currency transaction in excess of 10k B. Any transmittal of currency outside of U.S C. Multiple transmittals of currency by one customer D. Any transmittal of funds of at least 2k
A. A single currency transaction in excess of 10,000 Broker/Dealers are required to file a currency transaction report (CTR) for single transactions involving currency that exceed 10k or multiple transactions during any single business day that total more than 10k
Which of the following statements regarding Coverdell Education Savings Accounts is correct? A. Contributions are made with after-tax dollars and grow tax-deferred B. Contributions must cease when the beneficiary turns 30 C. Funds not used for education may be rolled over into an IRA for the beneficiary D. All distributions are taxable to the beneficiary
A. Contributions are made with after-tax dollars and grow tax-deferred Contributions to a Coverdell are made with after-tax dollars and grow tax deferred. Withdrawals are tax-free when used for qualified education expenses. Contributions are not permitted once the beneficiary turns 18 and the money must be used by age 30 or rolled over to a Coverdell for another qualified family member. Unused funds cannot be rolled into an IRA
All of the following are considered essential facts members must obtain when opening a new account EXCEPT A. Employment History B. Whether customers on their spouses are employees of FINRA member C. Investment objective D. Address
A. Employment History Essential facts included a customers occupation but not their employment history
Regulation T of the Securities Exchange Act of 1934 gave the power to establish margin requirements to A. Federal Reserve Board B. Issuing Corporation C. Broker/Dealers D. Securities Exchange Commission
A. Federal reserve board The federal reserve board, a federal agency that controls the amount of money and credit in the economy, has the authority to establish margin requirements
In accordance with the Uniform Gifts to Minors Act, a donor may A. Give an unlimited amount cash B. Include the value of collectibles in the account C. Only revoke gifts of cash D. Give cash gifts up to 18k
A. Give an unlimited amount of cash
Suitability judgments should be made based on A. Information obtained from the client B. The registered representatives (RR's) own observation of a client's lifestyle and spending habits C. The types of investments typically held by clients in a similar income bracket D. None of the above
A. Information obtained from the client
Which of the following is true regarding an individual account? A. No one but the owner may give trade instructions unless the customer had provided advance written permission B. The broker/dealer may receive trade instructions from the individuals husband C. Family members may discuss the account with the broker/dealer at any time D. The owner's attorney may provide trade instructions on behalf of the owner.
A. No one but the owner may give trade instructions unless the customer had provided advance written permission
Participation in seminars, radio, or television interviews would be best described as A. Public appearances B. Sales presentations C. Correspondence D. Institutional Communications
A. Public appearances
All of the following statements are correct with regard to a Uniform Gifts to Minors ACT (UGMA) account EXCEPT A. The custodian may open a margin account for the minor B. There can be only one custodian and one minor per account C. The custodian is not required to be a guardian or relative of the minor D. Purchases in the UGMA account are eligible for reduced sales charges from rights of accumulation
A. The custodian may open a margin account for the minor
Under which of the following circumstances is a broker/dealer allowed to share nonpublic information of consumers with nonaffiliated third parties? A. The customer has not elected to opt out of the disclosure B. The consumer did not receive the initial privacy notice C. Broker/Dealer did not disclose the information-sharing agreement with nonaffiliated parties to the consumer D. Broker/Dealer did not establish safeguards to protect the consumer records
A. The customer has not elected to opt out of the disclosure A broker/dealer may not share nonpublic information of consumers with nonaffiliated third parties, except when a joint marketer or service provide delivers certain information to the consumer, and if the consumer has not elected to opt out of the disclosure.
All of the following are essential facts about a customer that should be obtained when opening an account EXCEPT? A. Years of employment B. Address C. Name D. Age
A. Years of employment
Failing to respond to a regulatory request in a reasonable amount of time A. Will be considered an additional violation B. Can be facilitated with the use of "extension waivers" C. Can result in punitive damages to the customer of the broker/dealer D. Can be disregarded and/or appealed if it is an unreasonable request by a regulator
A. will be considered an additional violation Regulators are entitled to access. If a member firm does not respond to the regulator, it is considered to be an additional violation
According to FINRA regulations, when an investor makes an initial purchase of $2,500 in a new margin account, they are required to make a cash deposit of A. $1,250 B. $,2000 C. $2,500 D. $5,000
B. $2,000 In a new margin account, according to FINRA, an investor is required to deposit a minimum of $2,000, or the purchase price of the securities, whichever is less. The $2,000 minimum margin equity requirement applies when opening a margin account with a margin transaction, or upon the first margin transaction in the account.
Members must keep copies of trade confirmations sent to the customer for a minimum of how many years? A. 2 years B. 3 years C. 5 years D. indefinitily
B. 3 years
When a customer adds another owner to their account, the Customer Relationship summary (Form CRS) must be updated within A. 15 days B. 30 days C. 45 days D. 6 months
B. 30 days
What is the earliest age at which a ROTH IRA distribution could be classified as qualified? A. 50 B. 59 1/2 C. 70 D. 73
B. 59 1/2
An account under the Uniform Gifts to Minors Act received $8,500 in interest income from bonds. The minor is 13 years old. How is this interest income taxed? A. $8,500 taxed at the parents rate B. A portion is taxed at the minors rate and a portion is taxed at the parents rate C. $8,500 taxed at the minors rate D. $8,500 taxed at the custodians rate
B. A portion is taxed at the minors rate and a portion is taxed at the parents rate
All the following are appropriate options that a broker/dealer can offer customers to allow them to opt out of REG S-P Privacy rules easily EXCEPT A. A link in e-mail B. A written Letter C. A toll free phone number D. A prepaid postcard addressed to the broker/dealer
B. A written letter It is too cumbersome to ask a customer to write a letter requesting to opt out of allowing broker/dealer to send their personal nonpublic information8 to nonaffiliated third parties.
Which of the following must be filed to establish a corporate margin account? A. SAR Report B. Corporate Resolution C. Power of Attorney D. Affidavit of domicile
B. Corporate Resolution A corporate resolution and a corporate charter are required, along with a margin loan agreement
A registered representative (RR) has a client who wants him to maintain all monies and securities for her at his brokerage. For the RR to meet the requirements for such a custodial account, he will need to do which of the following ? A. Set up an account in the brokerage name that is used to retain all custodial accounts B. Establish an account in his clients or his name that contains only his clients monies and securities C. Have his client sign over ownership of the securities to the brokerage D. File an amended account registration form with the state securities administrators office
B. Establish an account in his clients or his name that contains only his clients monies and securities Clients monies and securities must be maintained in a separate account under either the clients name or in a separate account with only the advisor clients funds under the advisors names
What is a firm required to do when it receives a cash deposit in excess of 10k from one customer in a single business day? A. Keep a record of the transaction on file for 3 years B. File a currency Transaction report (CTR) C. Freeze the account immediately D. File a Suspicious Activity Report (SAR)
B. File a currency Transaction Report (CTR) A firm must file a CTR within 15 days if it receives more than 10k in currency from a customer within a 24 hour period. A record of this activity must be kept on file for 5 years
In a custodial account, the responsibility for tax liabilities from dividends, interest income, and capital gains belongs to the A. Custodian B. Minor C. Minor's parents or guardians D. All of the above
B. Minor Tax liabilities belong to the minor in a custodian account
Penny stock accounts must receive an account statement A. Weekly B. Monthly C. Quarterly D. Annually
B. Monthly Members must send account statements for all accounts quarterly, but penny stock accounts must receive monthly
A customer deposits $7,500 in currency in his account at a financial institution. The financial institution A. Cannot accept the deposit B. Must file an SAR C. Is not required to do anything D. Must file a CTR
B. Must file an SAR The financial institution may accept the deposit. However, if a customer deposits $5,000 or more in currency or nonverifiable funds within a 24-hour period, the firm must file a Suspicious Activity report (SAR) within 30 days. If a firm receives more than 10k in currency from a customer with a 24hr period, it must file a currency transaction report within 15 days.
Which of the following may NOT be purchased on a margin? A. Corporate Bonds B. Mutual Funds C. Closed-end investment company shares D. Treasury bonds
B. Mutual Funds Because Mutual fund companies continually issue redeemable shares, they are considered new issues and cannot be purchased on margin. In addition, mutual funds cannot be used as collateral for margin purchases until they are held in cash account for 30 days
What types of information satisfy the minimum requirements for the types of information to be collected under the customer identification program (CIP) when opening new customer accounts? A. Name, Date of Birth, account numbers at other financial institutions, and net worth B. Name, Address, date of birth, and social security number C. Name, Address, employer, and the length of employment D. Name, SSN, employer, and annual income
B. Name, Address, Date of Birth, And SSN
A prospective customer tells the registered representative to add her name to the broker/dealers do not call list . Which of the following is true ? A. The rep's supervising principal may call to verify account information B. No one from the broker/dealer may call the individual again C. The broker/dealer may continue to send faxes to the number D. The compliance officer may call the individual to verify the request
B. No one from the broker/dealer may call the individual again.
The bank secrecy act was designed to do all of the following EXCEPT A. Authorize the maintenance of records of financial transactions B. Protect the privacy of consumers C. Identify the source of currency transported into or out of the U.S D. Identify the source and volume of currency deposited in financial institutions
B. Protect the privacy of consumers The bank secrecy act was designed to help identify the source, volume, and movement of currency transported into or out of the united states, or deposited in financial institutions, and to maintain records of financial transactions and to report any suspicious transactions
Which of the following facts concerning UGMA accounts is incorrect ? A. Gifts made to the minor are irrevocable B. Securities are registered in the name of the minor C. Only one custodian per minor allowed D. Margin transactions are not allowed
B. Securities are registered in the name of the minor
Which transaction can only be executed in a margin account? A. Long sale of common stock B. Short sale of common stock C. Opening sale of cash covered short put D. Purchase of nonconvertible bonds
B. Short sale of common stock Short sales must be on margin because stock must be borrowed. Short pull (obligation to buy) can be covered by cash so margins are not required. Purchases of stocks or bonds do not require a margin account if paid.
An associated person may borrow money from a customer if A. The customer offers to make the loan B. The customer is the associated persons sister C. The associated person discloses the loan to their member firm D. The customer is a high net worth individual
B. The customer is the associated persons sister An associated person may borrower money from a customer who is a member of the registered persons immediate family. In addition, they can borrower form a customer who is in money-lending business, or from persons with whom they have either a personal or business relationship outside the broker/dealer.
All of the following are necessary requirements for a broker/dealer to hold a customers mail EXCEPT A. A written request from the customer B. The name of an alternative person to receive important correspondence on behalf of the customer C. A way to communicate with the customer in a timely manner to provide important notifications D. Written Disclosure to the customer of alternative ways to access account information
B. The name of alternative person to receive important correspondence on behalf of the customer There is no requirement for an alternative person
Your client is 78 years old and has recently shown signs of memory lapses when he meets with you. It has been 3 months since you have spoken with this client when you notice a significant amount of activity in the account, including the sale of securities and request for funds to be removed. You are concerned about fraud in the account. What action can you take to address your concerns? A. You can alert your principal officer and inform the principal you wish to be supervised while making transactions in the account B. While you cannot transact without the proper trading authority, you have an obligation to contract the client. Whether successful or not, you can place a hold on trading and funds transfers. C. You are a registered representative and can have your company simply back out of trades D. Nothing, without a power of attorney you cannot reverse trade requests or money transfers out.
B. While you cannot transact without the proper trading authority, you have an obligation to contract the client. Whether successful or not, you can place a hold on trading and funds transfers. For seniors age 65 or older who have physical or mental disabilities, FINRA permits the registered reps to place a temporary hold on the disbursement of funds or securities from the customers account. In addition, with written authorization from the client, the registered representative may contact a previously designated trusted contract person to discuss the account.
Retail Communications must be approved prior to use with the general public and must be kept on file for a period of A. 5 years B. 3 years C. 1 year D. 6 months
C. 3 years
For how long are member firms required to keep customer's written authorization to withdraw money from their account after the expiration date? A. 180 days B. 1 year C. 3 years D. 5 years
C. 3 years Member firms must keep written authorization that is separate from the negotiable paper for 3 years from its expiration date. Firms do not have to keep a copy of negotiable paper that is signed by the customer (such as a check)
The statute of limitations for fraudulent tactics to induce the purchase or sale of securities is A. 2 years from the violation B. 5 years from the violation C. 5 years from the violation or within 2 years of discovery D. 2 years from the violation or within 5 years of discovery
C. 5 years from the violation or within 2 years of discovery
Which of the following is FALSE regarding a client's risk tolerance? A. A person who is planning to buy a house within the next year likely has a low risk tolerance B. The risk tolerance associated with the investment is a non-financial consideration of an investment risk C. A 65-year-old retiree will have a higher risk tolerance than a 40-year-old professional D. It determines the investors degree of tolerance for negative changes in the portfolio
C. A 65-year-old retiree will have a higher risk tolerance than a 40 year professional Risk tolerance might be defined as the degree of uncertainty that investors can tolerate with regard to a negative change in the value of their portfolio. An investors risk tolerance typically varies according to age, investment experience, income requirements, and financial goals, among other factors. It is unlikely that a person of retirement age would have a greater degree of risk tolerance because their investment time frame is shorter.
FinCEN requires banks and broker/dealers to adhere to anti-money laundering (AML) rules, including A. Blue sky laws B. SRO reporting procedures C. A designated independent party to test the procedures D. Perpetrator forfeiture rules
C. A designated independent party to test the procedures
Who can make a fully deductible contribution to an IRA ? A. A highly paid individual covered by an employer-sponsored plan B. A person whose contributions are funded by investment income C. An individual not covered by an employer-sponsored plan D. Anybody; all IRA contributions are fully deductible regardless of income level
C. An individual not covered by an employer- sponsored plan
After receiving an initial privacy notice, subsequent privacy notices should be provided to customers A. Quarterly B. Semiannually C. Annually D. Every 3 years
C. Annually
The organization that provides custody services for securities certificates safekeeping is known as the A. Federal Reserve Board B. Financial Industry Regulatory Authority C. Depository Trust and Clearing Corporation D. Securities and Exchange commission
C. Depository Trust and Clearing Corporation The Depository Trust and Clearing Corporation (DTCC) is a clearing corporation for clearing and settling transactions but it also provides custody services for securities certificates safekeeping.
Which of the following would require a change in registration on a customer's account? A. Purchase of a timeshare B. Daughter's graduation from high school C. Marriage D. New Job
C. Marriage
Which of the following activities is an associated person who is not a registered representative permitted to perform? A. prequalify a prospective customer B. Make an investment recommendation C. Provide account opening forms to a new customer D. Take unsolicited order from a customer
C. Provide account opening forms to a new customer
A customer wishes to pay her son's college tuition using funds from her brokerage account. Her account has a checking account feature. The member firm may withdraw the funds if the customer does which of the following ? A. Offers to make a loan B. Requests over the phone a wire transfer of the funds to the college C. Request in writing to wire transfer of the funds to the college D. Provides the member firm with a copy of the tuition bill
C. Requests in writing a wire transfer of the funds to the college
A client wants to open an UTMA account for her 12 year old son. Whose tax ID is used? A. Father B. Mother C. Son D. Custodian
C. Son
Regarding UGMA and UTMA accounts which of the following is FALSE ? A. The gift is irrevocable B. The donor can be the custodian C. The account can hold margined securities D. The donor must be an adult
C. The account can hold margined securities Margin is not permitted in a custodial account. Neither uniform gifts to minors act (UGMA) nor uniform transfer to Minor ACT (UTMA) accounts can hold street-named securities, and margin account securities are in street name
Under which of the following circumstances is a company NOT permitted to restrict or close an account? A. There are two executers on an estate account and only one listed and signed the estate account application. B. The client has sold a recently purchases security that has not yet settled C. The client has sold a recently purchase security that has settled, or the client only has 55% equity in the margin account D. The custodian of UGMA account has died
C. The client has sold a recently purchased security that has settled, or the client only has 55% equity in the margin account
A 53-year-old individual who was laid off from his former company withdrew money from his traditional IRA despite immediately getting a new job with an increased salary. Which of the following is true? A. The Withdrawals will be considered ordinary income and subject to a 15% penalty B. The IRS will not tax him on the withdrawals because his employer terminated him from his job prior to age 59 1/2 C. The withdrawals will be taxed as ordinary income and subject to 10% early withdrawal penalty D. All of the money he takes from his IRA will be tax-free because he was between jobs
C. The withdrawals will be taxed as ordinary and subject to 10% early withdrawal penalty
Which of the following statements is true about tax-qualified annuities? A. They can discriminate B. Withdrawals are not taxed C. They must meet IRS requirements D. Employee contributions are not tax deductible
C. They must meet IRS requirements
A husband and wife want to make a contribution to their IRAs. The husband earns 350k a year. The husband earns 35,000 a year. The wife currently not working. What is the maximum they can currently contribute to their IRAs? A. 8k only for the husband B. 16k into one account C. Up to 7k for the husband and 7k for the wife D. 14k with any combination of contributions by the two of them
C. Up to 7k for the husband and 7k for the wife The maximum amount an individual can contribute annually to an IRA is up to 100% of earned income not to exceed 7k. The same amount can be contributed for nonworking spouse in a separate account, called the spousal IRA
What is the timeframe for filing relevant Suspicious Activity Reports? A. within 90 days of initial discovery B. Within 90 days of the suspicious transaction C. Within 30 days of the initial discovery D. Within 30 days of the suspicious transaction
C. Within 30 days of the initial discovery.
What is the annual exclusion amount for money given as a gift? A. $7,000 B. $10,000 C. $11,000 D. $18,000
D. $18,000 A person who gives someone money or property during their life may be subject to federal gift tax. In tax year 2024, the annual exclusion of gifts is 18k per gift recipient.
After the beneficiary of Coverdell reaches 30 years of age, within how many days must the funds be withdrawn A. immediately B. 10 days C. 20 days D. 30 days
D. 30 days The funds must be withdrawn from a Coverdell account within 30 days after the beneficiary attains the age of 30. Alternatively, the account could be transferred to another qualified family member. If the funds are not withdrawn, the capital gains on the account become taxable and subject to 10% penalty
A premature distribution from a Roth IRA made before the individual age reaches age 59 1/2 is subject to 10% penalty tax unless the distribution was for A. Payments on an existing home to avoid foreclosure action B. Living expenses while the account holder is unemployed C. Legal fees arising from a divorce action D. A first-time home purchase
D. A first time home purchase
A registered representative would like to open a new account for a customer. Information to open the account must be obtained A. On the same day the first order is entered B. No later than the confirmation of the first order C. No later than the next business day following the first order D. Before entering the first order
D. Before entering the first order Customer information must be obtained prior to entering the first order. The principal of the firm must approve the account on the day the account is opened and before any trades are placed.
Standards for the customer identification program (CIP) require all of the following EXCEPT ? A. Comparing the identity to the government lists of known terrorist's B. Keeping records of how identity was verified C. Verifying the identity of the customer D. Contacting other family members for identification purposes.
D. Contacting other family members for identification purposes
Which of the following is NOT required of a representative when determining the suitability of an investment? A. Ask the client about investments currently owned B. Ask the client questions pertaining to investment objective and time frame, financial status, and risk tolerance C. Document the process by utilizing a client questionnaire D. Determine where the client worked 5 years ago
D. Determine where the client worked 5 years ago
For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are A. Deductible based on the income level B. Never tax-deductible C. Partially tax-deductible depending on the income level D. Fully tax-deductible
D. Fully tax deductible Individuals who are not covered by an employer-sponsored plan may deduct the full amount of their IRA contributions regardless of their income level
Which of the following is TRUE regarding the review or approval of institutional communications? A. Institutional communications must be reviewed or approved by FINRA prior to first use B. Institutional communications must be reviewed or approved by the financial regulatory branch of each state government prior to first use C. Institutional communications are not subject to supervision and review by a registered principal D. Institutional communications do not generally need to be approved by a registered principal prior to first use if the firm has written procedures in place for supervision and review of the communications.
D. Institutional communications do not generally need to be approved by a registered principal prior to first use if the firm has written procedures in place for supervision and review of the communications.
Which of the following would likely increase a client's risk tolerance A. Job Loss B. Unexpected Medical Expenses C. Retirement D. Large inheritance
D. Large inheritance While a large inheritance might increase a clients risk tolerance, job loss, unexpected medical expense, and retirement typically reduce risk tolerance due to reduction in income.
What information is NOT necessary to determine a customers financial status? A. Income B. Current insurance C. Participation in retirement programs D. Place of birth
D. Place of Birth
Business continuity plans are required to address all of the following EXCEPT A. Customer Communications B. Data backup and recovery C. Regulatory Reporting D. Protecting member profitability
D. Protecting member profitability Business Continuity Plans are intended to help members meet obligations to customers during emergencies or significant business disruptions. They are not intended to protect member profitability.
Which of the following is NOT used to ascertain a customers financial status? A. Participation in retirement programs B. Liquidity needs C. Discretionary income D. Social Security number
D. Social Security Number Social Security Number is not essential in determining a clients financial status.
A firm has a joint account for a married couple. Any request for disbursements from the account, made by either spouse, would require that A. The check can be sent to either owner with power of attorney on file B. The instructions of either owner must be followed explicitly C. Any disbursement can be signed by either owner D. The check must be payable to both owners jointly
D. The check must be payable to both owners jointly
Which of the following is NOT true regarding a cash account? A. The customer must pay for purchases in accordance with REG T within 4 business days B. If a customer buys a security and then sells it without first paying for it, the account will be frozen for 90 days C. Cash accounts are required for minors D. The customer must sign a statement that he or she understands the risks.
D. The customer must sign a statement that he or she understands the risks
Which is true regarding UGMA/UTMA accounts? A. All children can be in a single family account B. A donors gift can be revocable if not used for college education C. Both parents can be co-owners with the minor D. The donor can be the custodian
D. The donor can be the custodian An UGMA/UTMA account permits one minor and one custodian per account, and all gifts are irrevocable. The donor can be the custodian
A 50-year-old individual needs $20,000 for his child's education, and wishes to withdraw the necessary funds from his traditional IRA. Which of the following statements is true concerning taxation on the withdrawal? A. The withdrawal will be subject to regular income tax and a 10% penalty B. Regular income tax on withdrawals in excess of his basis will apply, but no penalty C. A 10% penalty tax will be assessed for early distribution d. The entire amount will be taxed as ordinary income
D. The entire amount will be taxed as ordinary income Withdrawals from a traditional IRA are subject to regular taxation. In addition, a 10% premature withdrawal penalty is assessed on anyone withdrawing the money under age 59 1/2. However, the penalty will be waived if the distribution is due to the owner's death, disability, or terminal illness, for unreimbursed medical or education expenses, and first-time home ownership. The withdrawal is still subject to taxes as ordinary income.
When opening a new account, a registered representative should collect all of the following information EXCEPT A. Objectives and time horizons B. Risk tolerance C. Prior residential addresses D. Investment Experience
c. Prior residential address Objectives and time horizons Risk Tolerance Investment Experience Are all things a RR should collect before opening a new account.
