Account Basics Flashcards
What 4 basic pieces of information do you need to open a customer account?
Name
Address
SSN or Tax ID
DOB
If a firm requires it, what separate document must customers sign within 30 days of opening an account?
Arbitration Agreement
How often must a customer be sent their account profile for review?
Every 36 months
Are the customer or the registered representative required to sign the new account form?
Representative - Yes
Customer - No
How many days does a new customer have to verify their new account profile?
30
What are the 3 components of suitability according to FINRA?
Reasonable-Basis Suitability
Customer-Specific Suitability
Quantitative Suitability
Reasonable-Basis Suitability
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.
Customer-Specific Suitability
Analyzing how a specific investment product’s might work for an individual customer’s investment profile
Quantitative Suitability
Analyzing the investment product and all other investment activity of the customer to ensure that the account is not being overextended
Customer’s Personal Balance Sheet
Part of the suitability determination must include a personal balance sheet of the customer in order to determine liquid net worth
Liquid net worth
maximum amount of immediate funds a customer can commit to an investment
What three categories do suitability rules not apply to?
Institutional Investors
Unsolicited (customer requested) Trades
Investment Analysis Tools (ie Retirement Calculator)
What two stages are there to determining if a customer is suitable for a structured product investment?
Reasonable Basis - analyze product
Customer Specific Basis - analyze how product would work for customer
Pattern Day Trader Definition
4 or more trades in 5 business days or less
How long does a customer have to returned a signed options agreement after opening an options account?
15 days
Under MSRP rules, if a customer refuses to disclose financial information, can a recommendation still be made?
No
What does a loan consent form allow a brokerage firm to do with the securities in a customers margin account?
Lend them out to other customers to cover short sales
What happens to a joint account owned under joint tenancy with rights of survivorship when one of the parties dies?
The other party is the sole owner of the accont
How does tenancy in common work if one of the parties dies?
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
Who is most likely to use Transfer on Death as a form of account registration?
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
What is the benefit of a prime brokerage account for an institutional investor?
Allows all their assets to be consolidated into one main account that then names several different brokerage firms as being allowed to execute trades
Who usually uses prime brokerage accounts?
Hedge funds
What is the difference between durable and non-durable power of attorney
Durable power of attorney persists of the grantor becomes mentally incompetent, non-durable ceases
What is a fiduciary account?
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
What is the legal list?
A list of securities that a state allows fiduciary accounts to purchase. Usually only debt rated in the top 4 categories
For a discretionary account, when must a customer sign the trading authorization form?
before any trades take place
What can be done with a limited trading authorization?
Orders to buy and sell, but funds cannot be withdrawn
When is a trade considered discretionary?
When the broker chooses more than the price and the time of the execution
What 4 items need to be known when performing a trade for a customer
Size of Trade
Security
Price of Execution
Time of Execution
When must Market-Not Held orders be executed?
Same day
Who must approve all trades at end of day on a discretionary account?
Principal
UGMA
Uniform Gift to Minors Act - allows custodian accounts to be opened for minors
How many minors can be on a UGMA account?
1
Are UGMA accounts cash, margin, or both?
Only cash
What is generally the only option strategy that is appropriate for custodian accounts?
Covered call writing
UTMA
Uniform Transfer to Minors Act - newer version of UGMA
Difference between UGMA and UTMA
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
Who would use an omnibus account?
Investment adviser - used to create a master account that will manage several clients
How quickly must customers receive written confirmation of transactions on their account?
1 day after trade
When would a customer receive a monthly statement as opposed to a quarterly statement?
Monthly statements if there is any trading activity, quarterly if there is not
What 3 records must be kept on hand for all customers?
New Account Form information
Chronological record of trades
Current account statement
what happens if there is an error in how a firm executed a customer’s order?
The firm is required to provide the customer with the order at the price it could have been executed at
How long does a firm have to deliver any customer positions that are not physically at the firm if the customer transfers?
10 days
What 4 things should a registered representative do if they learn that a customer has died?
Cancel all open orders
Freeze account
Note customer is deceased on account
Await instructions from estate
What is a SAR and when is it used?
Suspicious Activity Report
Filed with law enforcement to report suspected money laundering activity
Does verification of new account data need to happen at opening, or can it be verified later?
Can be verified a reasonable time later
What information is required on the new account form?
type of account - cash or margin
country of citizenship
Are fixed fee accounts considered advisory products or brokerage products?
Advisory
Is an options agreement required at the opening of a new options account?
No, must be returned by customer within 15 days
Can minors participate in any kind of joint account?
No
Whose signature is required to open an account for a limited partnership?
general partner
What are the 3 parties to a brokerage account?
1st - Brokerage Firm
2nd - Customer
3rd - Anyone Else
If a third party has full power, can they withdraw checks in their name?
No, checks must be made to customers name
What is the only type of account that requires a signed customer agreement to open?
Margin account
How are custodian accounts taxed?
income reported to IRS annually and due that year, responsibility of the minor; if income exceeds 2100, taxed at parents rate
Wrap Account
type of brokerage account where a customer is charged a single annual fee to cover all account services
What must a customer do to have a numbered account?
Sign a statement attesting ownership
How long can a customers mail be held?
3 months
If a customer is transferring their account, when can they start trading at the new firm?
Once their old firm validates the account transfer form
What agency should an SAR be filed to?
FinCEN - Financial Crimes Enforcement Network
Regulation SP
Statement of Privacy - requires finanacial institutions to disclose privacy policies
