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Customer Accounts > Account Basics > Flashcards

Account Basics Flashcards

1
Q

What are the basic items required on a new account form?

A
  • Customer name and address
  • Is it a cash or margin account?
  • Customer DOB
  • SS# or Tax ID #
  • Occupation and employer
  • Employed by another broker/financial insitution
  • Officer/director/ 10% shareholder
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2
Q

What information re: citizenship is needed to open a new account?

A
  • Citizenship status

- If foreign: foreign passport number and US tax ID #

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3
Q

What are the “Big 4” items that firms must independently verify?

A
  1. Customer name
  2. Customer address
  3. Social security or Tax ID #
  4. Date of birth
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4
Q

What is the CIP?

A

Customer identification program: Put in place to impede terrorists from having bank/brokerage accounts in the US
- Every customer must be notified that the firm has a CIP

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5
Q

What is an SIPC notice, and when must it be given?

A

The SIPC is the insuring corporation for broker dealers. Customers are advised in writing about the SIPC when the account is OPENED. Customers must also be given the SIPC info annually

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6
Q

What are the rules regarding an arbitration agreement?

A
  • Customers do NOT have to sign an arbitration agreement by law - but many firms require it
  • FINRA requires that w/in 30 days of signing the agreement, the customer must be provided a copy and must sign the receipt
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7
Q

What is FINRA Rule 2090 - Know your customer?

A

The reg. rep and member firm must use reasonable due diligence to know and retain the “essential” facts relative to every customer

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8
Q

What items must be obtained from a client for the KYC rule?

A
  • Name, address, telephone
  • Tax ID
  • DOB
  • Occupation/employer
  • Investment objectives
  • Annual income/net worth
  • Signature of associated person opening account
  • Signature of CUSTOMER (if discretionary acct)
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9
Q

What happens if a customer refuses to provide KYC info that the firm is trying to obtain?

A

There is no obligation to collect it and can still open the account, unless it is one of the Big 4 items (Name, address, SS#, or DOB)

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10
Q

Who must sign the new account form?

A

The Reg. Rep. There is no rule that the customer must sign (unless it is a discretionary account)

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11
Q

When must a customer receive a copy of the Account Profile?

A

Within 30 days AFTER opening and every 36 months thereafter

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12
Q

What is the FINRA Suitability rule (Rule 2111)

A

Firms must have a reasonable basis to believe that a recommendation is suitable for the customer based on investment profile

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13
Q

What items are recorded in an investment profile?

A
  • Investment objectives, experience
  • Age
  • Other invest
  • Fin situation/needs
  • tax status
  • time horizon/liquidity needs
  • Risk tolerance
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14
Q

What are the THREE main components to determine suitability?

A

RCQ

  1. Reasonable basis Suitability
  2. Customer specific suitability
  3. Quantitative suitability
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15
Q

What does the Reasonable basis suitability test require?

A

The Reg. Rep must fully understand the features, returns, risks, and costs associated w/ any recommendation given

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16
Q

What does the Customer specific suitability test require?

A

The member firm must have a reasonable basis to recommend the strategy based on evaluation of customer profile

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17
Q

What does the quantitative suitability rest require?

A

Even if a recommended strategy to a customer might be suitable once, it may not be suitable for a series of similar transactions (no churning)

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18
Q

What is the main consideration regarding an ECN?

A

The risk of default. They are only backed by the faith and credit of the issuing bank

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19
Q

What defines a pattern day trader?

A

One who engages in 4 or more day trades in a 5 business day period

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20
Q

What must firms give day traders before opening a day trading account?

A

A Day Trading Disclosure Document

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21
Q

What must a firm do if it realizes that one of its accounts has not been properly qualified for, and is day trading?

A

Account must be approved for day trading within 10 days following the date of realization

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22
Q

What is an NMFBA?

A

Non managed fee-based acccount. Prior to opening one for a customer, firm must provide the customer with a disclosure document showing fee computation

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23
Q

What are fee-based accounts that do NOT impose a per transaction commission considered?

A

Advisory products

24
Q

How often are firms required to monitor account activity for NMFBA’s?

A

At least every 12 months

25
Q

What are some red flags for senior citizen accounts?

A
  • Buy variable annuities, equity indexed annuities, RE lim. partnerships
  • Variable life settlements
  • Structure product purchases (CDO’s)
  • Mortgage one’s residence to invest
  • Use retirement money to make risky investments (growth stocks)
26
Q

What steps must a rep take if diminished mental capacity in a senior citizen is noticed/suspected?

A
  • Document it and escalate immediately
27
Q

What must the firm do once diminished mental capacity is recognized?

A
  • Communicate w/ customer’s contact person or P.O.A
  • Maintain contact with the investor to assess situation
  • Consult state statues to determine next steps

(Note: verbal confirmations of diminished mental capacity can only be given by IMMEDIATE family members)

28
Q

When must a customer receive the ODD (Options Disclosure Document)

A

BEFORE the options account is opened (first trade made)

29
Q

What goes on the ODD?

A

SPECIFIC questions regarding:

  • Invest. objective/experience
  • Financial situation/needs
  • marital status
  • net worth
  • liquid net worth
  • estimated annual income

If the customer does not disclose all info, the account CAN still be opened

30
Q

When is the options agreement required to be sent and signed?

A

It is sent when the account is opened, and required to be signed by the customer 15 days after the account is opened. If not received, no new trades can be initiated - only closing transactions

31
Q

Is the customer signature required on the new account form?

A

No. Remember, it can be done over the phone

32
Q

What are the characteristics of a margin account?

A
  • Customer deposits portion of funds to buy security and balance is LOANED by brokerage firm
  • Firm charges interest on loan
  • Margined securities held in STREET name
  • Customer SIGNS margin agreement
  • Sometimes there is a loan consent agreement or a Credit disclosure document
33
Q

What is the basis of a Joint Tenancy w/ Rights of Survivorship?

A

If one party dies, the other side is now the 100% owner

34
Q

What is the basis of a Tenancy in Common?

A

Each party has a PERCENT (%) and that % is passed to the estate if one party dies

35
Q

What is a Transfer on Death policy? (TOD)

A

Replacement for JTWROS - the account is in ONE party’s name, but upon death, assets go directly to the named beneficiary and avoids probate

36
Q

What is required to establish a corporate account?

A
  • Copy of corporate AGREEMENT

- Corporate RESOLUTION with corporate SEAL

37
Q

What is required to establish a partnership account?

A
  • Copy of partnership agreement

- If it is a LIMITED partnership, you only need the general partner’s signature

38
Q

What is a prime brokerage account?

A
  • In return for sending commission trades to different firms, an institution (like a hedge fund) gets research and recommendations from the broker dealers
  • The prime brokerage account designates a single broker as primary - where all assets are consolidated
39
Q

What does the prime broker do for an institution?

A

Settles all trades, maintains custody, and provides LOWER financing costs on margined positions

40
Q

What is third party trading?

A

The customer will allow someone other than himself or the brokerage firm to trade for him

41
Q

What defines a a limited trading authorization?

A

Orders to buy and sell can be entered, but funds can NOT be withdrawn

42
Q

What defines a full trading authorization?

A

Orders can be entered and funds can be withdrawn, but the name on the check is the CUSTOMER’S

43
Q

What must occur for a duplicate confirmation to be sent to a third party under POA?

A

It must be requested by the customer

44
Q

What are the Fiduciary account types?

A
  • Trust
  • Guardian
  • Admin of Estate
  • Executor of estate
  • Conservator or income
  • Receiver in bankruptcy
45
Q

Is it ok for the reg. rep. to be the trustee over the customer’s account?

A

No. This is generally a conflict of interest

46
Q

What are the basic rules for a fiduciary account?

A
  • Third party is acting as owner
  • NO third party TRADING
  • CASH only; no margin accounts
  • often limited to investing in a Legal List OR they must follow the PRUDENT man rule
47
Q

What is the prudent INVESTOR rule?

A

Using Modern Portfolio Theory for investment choices. Investor applies risk-return analysis to choose appropriate investments

48
Q

What is a discretionary account?

A

An account in which the customer gives the FIRM authorization to trade. Must be signed BEFORE any trades take place

49
Q

What are the 4 items that are chosen in every trade, and which 2 items make a trade “discretionary”

A

The 4 items are:

  1. Size of trade
  2. Security
  3. Price of execution
  4. Time of execution

If the SIZE and/or SECURITY is chosen by the broker, then it is a discretionary trade (Remember SS)

50
Q

What must be acquired for a firm to execute a market-not-held order?

A

A power of attorney (POA) - these orders must be executed same day

51
Q

What is an OMNIBUS account?

A
  • individual new account form and trading auth. needed
  • investment adviser’s clients are grouped into ONE account
  • Annual mgmt. fee
  • Confirms of trades and statements sent to both customer and adviser
52
Q

What is a numbered account?

A

Name is confidential, but the firm is obligated to maintain record of true owner

53
Q

When are trade statements sent to customers?

A

If there has been trading, they are sent monthly, if there has been no trading, they are sent Quarterly

54
Q

Where must inaccuracies identified by the customer on their account statement be sent?

A

To the brokerage FIRM

55
Q

What must a registered rep. keep track of?

A
  • Copy of new account form info
  • Chronological record of trades
  • Current account statement showing securities positions
56
Q

What is the difference between error in confirmation and error in execution?

A

Error in confirm - customer gets corrected confirm

Error in execution - customer gets corrected TRADE

Customer Accounts (11 decks)

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