Account Basics

Question 1

What 4 basic pieces of information do you need to open a customer account?

Answer 1

Name
Address
SSN or Tax ID
DOB

Question 2

If a firm requires it, what separate document must customers sign within 30 days of opening an account?

Answer 2

Arbitration Agreement

Question 3

How often must a customer be sent their account profile for review?

Answer 3

Every 36 months

Question 4

Are the customer or the registered representative required to sign the new account form?

Answer 4

Representative - Yes

Customer - No

Question 5

How many days does a new customer have to verify their new account profile?

Answer 5

30

Question 6

What are the 3 components of suitability according to FINRA?

Answer 6

Reasonable-Basis Suitability
Customer-Specific Suitability
Quantitative Suitability

Question 7

Reasonable-Basis Suitability

Answer 7

Requires the registered representative to fully understand the various benefits, risks, and features of every product they offer so that they can accurately assess their value to a customer.

Question 8

Customer-Specific Suitability

Answer 8

Analyzing how a specific investment product’s might work for an individual customer’s investment profile

Question 9

Quantitative Suitability

Answer 9

Analyzing the investment product and all other investment activity of the customer to ensure that the account is not being overextended

Question 10

Customer’s Personal Balance Sheet

Answer 10

Part of the suitability determination must include a personal balance sheet of the customer in order to determine liquid net worth

Question 11

Liquid net worth

Answer 11

maximum amount of immediate funds a customer can commit to an investment

Question 12

What three categories do suitability rules not apply to?

Answer 12

Institutional Investors
Unsolicited (customer requested) Trades
Investment Analysis Tools (ie Retirement Calculator)

Question 13

What two stages are there to determining if a customer is suitable for a structured product investment?

Answer 13

Reasonable Basis - analyze product

Customer Specific Basis - analyze how product would work for customer

Question 14

Pattern Day Trader Definition

Answer 14

4 or more trades in 5 business days or less

Question 15

How long does a customer have to returned a signed options agreement after opening an options account?

Answer 15

15 days

Question 16

Under MSRP rules, if a customer refuses to disclose financial information, can a recommendation still be made?

Answer 16

No

Question 17

What does a loan consent form allow a brokerage firm to do with the securities in a customers margin account?

Answer 17

Lend them out to other customers to cover short sales

Question 18

What happens to a joint account owned under joint tenancy with rights of survivorship when one of the parties dies?

Answer 18

The other party is the sole owner of the accont

Question 19

How does tenancy in common work if one of the parties dies?

Answer 19

Each party originally specified a percentage of interest in the account. If they die that percentage goes into their estate and can be passed on to anyone

Question 20

Who is most likely to use Transfer on Death as a form of account registration?

Answer 20

Elderly people. Allows them to specify a beneficiary to inherit the account if they die. Also used in second marriages to provide for children from a first marriage

Question 21

What is the benefit of a prime brokerage account for an institutional investor?

Answer 21

Allows all their assets to be consolidated into one main account that then names several different brokerage firms as being allowed to execute trades

Question 22

Who usually uses prime brokerage accounts?

Answer 22

Hedge funds

Question 23

What is the difference between durable and non-durable power of attorney

Answer 23

Durable power of attorney persists of the grantor becomes mentally incompetent, non-durable ceases

Question 24

What is a fiduciary account?

Answer 24

An account where a third party is acting for and in the best interest of the owner of the account. Example would be a trust account

Question 25

What is the legal list?

Answer 25

A list of securities that a state allows fiduciary accounts to purchase. Usually only debt rated in the top 4 categories

Question 26

For a discretionary account, when must a customer sign the trading authorization form?

Answer 26

before any trades take place

Question 27

What can be done with a limited trading authorization?

Answer 27

Orders to buy and sell, but funds cannot be withdrawn

Question 28

When is a trade considered discretionary?

Answer 28

When the broker chooses more than the price and the time of the execution

Question 29

What 4 items need to be known when performing a trade for a customer

Answer 29

Size of Trade Security Price of Execution Time of Execution

Question 30

When must Market-Not Held orders be executed?

Answer 30

Same day

Question 31

Who must approve all trades at end of day on a discretionary account?

Answer 31

Principal

Question 32

UGMA

Answer 32

Uniform Gift to Minors Act - allows custodian accounts to be opened for minors

Question 33

How many minors can be on a UGMA account?

Answer 33

1

Question 34

Are UGMA accounts cash, margin, or both?

Answer 34

Only cash

Question 35

What is generally the only option strategy that is appropriate for custodian accounts?

Answer 35

Covered call writing

Question 36

UTMA

Answer 36

Uniform Transfer to Minors Act - newer version of UGMA

Question 37

Difference between UGMA and UTMA

Answer 37

UTMA allows any type of gift such as real estate, art, patents UGMA sets transfer age at 18, UTMA allows customer to set a transfer age, up to maximum set by state

Question 38

Who would use an omnibus account?

Answer 38

Investment adviser - used to create a master account that will manage several clients

Question 39

How quickly must customers receive written confirmation of transactions on their account?

Answer 39

1 day after trade

Question 40

When would a customer receive a monthly statement as opposed to a quarterly statement?

Answer 40

Monthly statements if there is any trading activity, quarterly if there is not

Question 41

What 3 records must be kept on hand for all customers?

Answer 41

New Account Form information Chronological record of trades Current account statement

Question 42

what happens if there is an error in how a firm executed a customer's order?

Answer 42

The firm is required to provide the customer with the order at the price it could have been executed at

Question 43

How long does a firm have to deliver any customer positions that are not physically at the firm if the customer transfers?

Answer 43

10 days

Question 44

What 4 things should a registered representative do if they learn that a customer has died?

Answer 44

Cancel all open orders Freeze account Note customer is deceased on account Await instructions from estate

Question 45

What is a SAR and when is it used?

Answer 45

Suspicious Activity Report | Filed with law enforcement to report suspected money laundering activity

Question 46

Does verification of new account data need to happen at opening, or can it be verified later?

Answer 46

Can be verified a reasonable time later

Question 47

What information is required on the new account form?

Answer 47

type of account - cash or margin | country of citizenship

Question 48

Are fixed fee accounts considered advisory products or brokerage products?

Answer 48

Advisory

Question 49

Is an options agreement required at the opening of a new options account?

Answer 49

No, must be returned by customer within 15 days

Question 50

Can minors participate in any kind of joint account?

Answer 50

No

Question 51

Whose signature is required to open an account for a limited partnership?

Answer 51

general partner

Question 52

What are the 3 parties to a brokerage account?

Answer 52

1st - Brokerage Firm 2nd - Customer 3rd - Anyone Else

Question 53

If a third party has full power, can they withdraw checks in their name?

Answer 53

No, checks must be made to customers name

Question 54

What is the only type of account that requires a signed customer agreement to open?

Answer 54

Margin account

Question 55

How are custodian accounts taxed?

Answer 55

income reported to IRS annually and due that year, responsibility of the minor; if income exceeds 2100, taxed at parents rate

Question 56

Wrap Account

Answer 56

type of brokerage account where a customer is charged a single annual fee to cover all account services

Question 57

What must a customer do to have a numbered account?

Answer 57

Sign a statement attesting ownership

Question 58

How long can a customers mail be held?

Answer 58

3 months

Question 59

If a customer is transferring their account, when can they start trading at the new firm?

Answer 59

Once their old firm validates the account transfer form

Question 60

What agency should an SAR be filed to?

Answer 60

FinCEN - Financial Crimes Enforcement Network

Question 61

Regulation SP

Answer 61

Statement of Privacy - requires finanacial institutions to disclose privacy policies