Ch. 1 S7 Flashcards
List some important considerations when determining the suitability of recommendations made to customers.
Investment objectives, financial situations, risk tolerance, tax status
What is the maximum tax rate for long term capital gains tax?
20%
Why is clients profession relevant when determining suitability?
It may indicate the clients level of sophistication and the potential need for liquidity
Sales tax is an example of a ___________ tax.
Regressive or flat
Regressive taxes are also referred to as ____________ taxes.
Flat
What should an agent consider when determining suitability for an institutional client?
Whether the client is acting independently and has the capability to understand the risks
What is not pertinent when opening an account, a clients educational or financial background?
Educational background
What three suitability obligations does FINRA impose on broker dealers?
- Reasonable basis, 2. Customer specific, and 3. Quantitative
To determine suitability, what information must be obtained to complete an investors profile?
Age, current investments, tax rate, objectives, investment experience, time horizon, liquidity, needs, risk tolerance
T/F: There are no suitability requirements for institutional investors.
F; although they differ from retail requirements, suitability requirements do apply to institutional investors.
What is the formula for calculating an individuals personal discretionary income?
Income - expenses = discretionary income
In making suitability determination for an institution, what are some concerns a BD may have?
The institutions ability to evaluate investments; use its own judgement in the past; it’s use of an outside adviser
Is a gift of $32,000 per married couple, per year, exempt from gift tax?
Yes
When dealing with institutional client suitability, what are two important considerations?
The clients ability to evaluate independently the risk and the extent to which they are exercising that ability.
What is some important information to obtain when opening a new clients account?
Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience.
T/F: FINRAs suitability rules for institutions are less stringent when compared to the rules for retail investors.
T
Income and estate tax are examples of a _____________ or __________ tax.
Progressive or graduated
Progressive taxes are also referred to as _________ taxes.
Graduated
Is a gift of $16,000 per person, per year, exempt from gift tax?
Yes
An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in _____________.
Interest rates.
T/F: a BD has no responsibility to determine suitability for institutional investors.
F; a BD is never relieved of its suitability obligation
T/F: Suitability rules do not apply when clients make their own investment decisions.
T
T/F: BDs are responsible for determining client suitability and providing execution.
T
How large can a gift be between spouses and remain exempt from gift tax?
An unlimited amount
