Chapter 4 - Section 4 - Model Rules for Agents

Question 1

True or False: It is permissible for Agents of a BD to lend or borrow money/securities to or from a customer, or acting as a custodian for money, securities, or an executed stock power for a customer.

Answer 1

False. Agents of a broker-dealer (BD) are generally not allowed to lend or borrow money or securities to or from a customer, or act as a custodian for money, securities, or an executed stock power for a customer. Exceptions Immediate family, a financial institution, same firm, personal relationship or business relationship.

Question 2

_________ _________ is when a broker or financial advisor conducts securities transactions or offers investment opportunities that are not approved by their employing brokerage firm. This practice bypasses the firm’s oversight and due diligence processes, which are in place to protect investors. As a result, this practice is prohibited and can lead to severe penalties for the broker, including fines, suspension, or even being barred from the industry.

Answer 2

Selling away

Question 3

Can agents of a broker-dealer have outside securities accounts?

Answer 3

Yes, but they must:

1. Obtain prior written consent from their employing broker-dealer.
2. Notify the executing firm about their association with their employing broker-dealer.
3. Ensure the executing firm sends duplicate copies of account statements and transaction confirmations to the employing broker-dealer.

Question 4

What is required under NASAA rules for an agent to share in the profits and losses in a customer’s account?

Answer 4

• The agent must obtain consent from both the customer and the employing broker-dealer.
• No financial contribution to the account is required.

Question 5

What is required under FINRA rules for an agent to share in the profits and losses in a customer’s account?

Answer 5

• The agent must obtain prior written authorization from both the customer and the employing broker-dealer.
• The agent can only share in the profits and losses in direct proportion to their financial contributions to the account.

Question 6

Can agents of a broker-dealer split commissions with someone not registered as an agent of the same broker-dealer?

Answer 6

No, this practice is prohibited and considered unethical.

Question 7

What is required for someone to legally receive commissions from a broker-dealer?

Answer 7

They must be registered as an agent of the same broker-dealer.

Question 8

Do customers need to be informed of agents splitting commissions, profits or other compensation from the purchase or sale of securities if they are with the same BD?

Answer 8

No

Question 9

Agents of a Broker-Dealer shall not exercise discretionary authority without prior written authority unless the discretion is for _______ and ________ only.

Answer 9

Time and Price

Question 10

Can agents of a broker-dealer commingle client funds with their own?

Answer 10

No, commingling client funds with personal or broker-dealer funds is strictly prohibited.

Question 11

What must agents do to ensure the safety of client funds?

Answer 11

Agents must maintain separate accounts and accurate records for client funds.

Question 12

Agents selling investment company shares (mutual funds), must give full disclosure in relation to sales charges, deferred sales charges, breakpoints, and rights of accumulation.

Answer 12

True

Question 13

What are breakpoints in mutual fund sales?

Answer 13

Breakpoints are discounts on sales charges based on the amount invested. Agents must inform clients about these discounts.