Chapter 01: Building an Investor Profile

Question 1

True or False: There are no suitability requirements for institutional investors.

Answer 1

False. Although they differ from retail requirements, suitability requirements do apply to institutional investors.

Question 2

What is not pertinent when opening an account, a client’s educational or financial background?

Answer 2

Educational background

Question 3

How large can a gift be between spouses and remain exempt from the gift tax?

Answer 3

An unlimited amount

Question 4

Progressive taxes are also referred to as ____________ taxes.

Answer 4

Progressive taxes are also referred to as graduated taxes.

Question 5

What is some of the important information to obtain when opening a new client’s account?

Answer 5

Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience

Question 6



True or False: FINRA’s suitability rules for institutions are less stringent when compared to the rules for retail investors.

Answer 6

True

Question 7



List some important considerations when determining the suitability of recommendations made to customers.

Answer 7



Investment objectives, financial situation, risk tolerance, tax status

Question 8



Why is a client’s profession relevant when determining suitability?

Answer 8



It may indicate the client’s level of sophistication and the potential need for liquidity

Question 9



To determine suitability, what information must be obtained to complete an investor’s profile?

Answer 9



Age, current investments, tax rate, objectives, investment experience, time horizon, liquidity, needs, risk tolerance

Question 10



An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in

Answer 10



An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in interest rates.

Question 11

True or False: Suitability rules do not apply when clients makes their own investment decisions.

Answer 11

True

Question 12

Regressive taxes are also referred to as _______ taxes.

Answer 12

Regressive taxes are also referred to as flat taxes.

Question 13

Is a gift of $34,000 per married couple, per year, exempt from gift tax?

Answer 13

Yes ($17,000 gift x 2 people)

Question 14

What should an agent consider when determining suitability for an institutional client?

Answer 14

Whether the client is acting independently and has the capability to understand the risks

Question 15

True or False: A BD has no responsibility to determine suitability for institutional investors.

Answer 15

False. A BD is never relieved of its suitability obligation.

Question 16

Sales tax is an example of a _____________________ tax.

Answer 16

Sales tax is an example of a regressive or flat tax.

Question 17

When dealing with institutional client suitability, what are two important considerations?

Answer 17

The client’s ability to evaluate independently the risk and the extent to which they are exercising that ability.

Question 18

What is the formula for calculating an individual’s personal discretionary income?

Answer 18

Income - Expenses = Discretionary Income

Question 19

What is the maximum tax rate for long-term capital gains tax?

Answer 19

20%

Question 20

Income and estate tax are examples of a ___________ or __________ tax.

Answer 20

Income and estate tax are examples of a progressive or graduated tax.

Question 21

True or False: BDs are responsible for determining client suitability and providing best execution.

Answer 21

True

Question 22

Is a gift of $17,000 per person, per year, exempt from gift tax?

Answer 22

True

Question 23

Dividends from a REIT are taxed at?

Answer 23

An investor’s marginal tax bracket.

Remember, REITs don’t pay corporate taxes if the distribute 90% of net income