Chapter 1 Flashcards
Under this rule RRs must use due diligence when obtaining essential information to open and service a customers account.
Know your customer (KYC)
Must send copy of the customer profile or account record to the customer within how many days of the account opening?
30 days or with next statement
Updates and account information verification must be sent to the client at least how often?
36 months
Prior to making any suitable customer recommendations, a RR should :
Know their customer
Earned income includes:
Wages, salary, net earnings from self employment, tips, any employee compensation taxable
Passive income includes:
Rents, royalties, stakes in limited partnerships, business activities in which individual does not materially participate
Investment income includes:
Interest, dividends, capital gains
——— are a resource with economic value that client owns or controls with the expectation that they will provide a benefit. Can generate cash flow.
Assets
______ represent a clients debt or obligations and refer to any money or service that is currently owed to another party.
Liabilities
Formula to calculate Net worth
Assets-liabilities
____is the investors attitude toward a negative change in the value of their invested portfolio and is important part of the investor profile.
Risk tolerance
Short term needs recommendations
Money market funds, certificates of deposit, short term bonds
Long terms needs recommendations
Small and mid cap stocks, growth stocks or funds, international stocks or funds.
_____ is the frequency and size of fluctuations in a securities value compared to changes in the over all market. Measure with Beta.
Volatility
Volatility measure of the overall market
1.0
What type of security has been shown to hedge against inflation?
Stocks
What type of investors are hardest hit by inflation?
Fixed-income
Recommending a client hold a position that is unsuitable could be a violation of what rule?
Know your customer rule and FINRA rule 2111
FINRA RULE 2111 3 Main suitability obligations :
Reasonable basis , customer specific, quantitative
Firms must have a reasonable basis to believe, based on adequate due diligence, that a recommendation is at least suitable to some investors:
Reasonable-basis suitability
Firms must have reasonable grounds to believe a recommendation is suitable for that specific investor based on profile:
Customer-specific suitability
Firms must have a reasonable basis to believe the number or size of recommended transactions within a certain period is not excessive
Quantitative-suitability