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Series 7- Passed with 83% > Chapter 5- Customer Accounts 15-25 Questions > Flashcards

Chapter 5- Customer Accounts 15-25 Questions Flashcards

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Series 7 Top-off Exam flashcards
1
Q

New account form

A

Required document to open an account with a broker dealer

Need basic info, social security if individual, occupation, citizenship, age, annual income, bank and brokerage references, are they an employee of another bank, signature of principal (not customer or Registered rep)

MSRB also requires customers tax status

FINRA doesn’t require signatures on the form from either the rep or the client

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2
Q

Know your customer rules

A

Need to know essential facts about customers current financial situation, present holdings, risk tolerance, needs and objectives.

Should be updated periodically.

Should know if customer is director officer or shareholder of 10% plus in a public ally trades company

May only make recommendations if sufficient info is provided to determine suitability

Should mark unsolicited if trade was made without recommendation of advisor

Unmarked is assumed to be solicited

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3
Q

USA patriot act 2001

A

Broker dealers are required to:

  1. Verify identity of new customer
  2. Maintain record to identify
  3. Determine if person is on a terrorist list

Designed to protect against money laundering and financing of terrorism

Must at least obtain to open an account:

  1. Customer Name
  2. DOB
  3. Address
  4. Social security number (if applied for, get in reasonable time period)

Must check names of customers against list of Specially Designated Nationals maintained by Office of Foreign Asset Control

The OFAC tracks terrorists and drug traffickers

Assets are blocked and US persons are banned from doing business with them

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4
Q

Specially Designated Nationals

A

List maintained by Office of Foreign Asset Control (OFAC)

Keeps track of all parties, companies individuals who act as terroists or those who traffic narcotics

Individuals or groups on the list have their assets blocked and US businesses are prohibited from conducting business

Should make aware that you will check ID by placing it on their website, verbally saying so or on the account form

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5
Q

Patriot Act rule on Updatig Contact info

A

Must provide customer an account record within 30 days of account opening to check all info

Must deliver updated information in same time period

Account updating must take place every 36 months

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6
Q

Regulation S-P (Privacy Notice)

A

Enacted by the SEC to protect customer privacy

Must supply customer with privacy policy when a new account is opened

If the firm discloses info to third parties in the policy, customers must be allowed to opt out through a check box form and return mailing, electronic form, and a toll free number

Asking customers to write a letter or to opt out on their own is not good enough

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7
Q

Account Ownership types and Authority

A

Individual, corporate, joint and partnership

Trading authorization (power of attorney)- someone other than the owner can open the account

Primary types of trade authorization-

  1. Discretionary- Registered rep given authorization to make trading decisions
  2. Custodial- Adult acting on behalf of a child
  3. Fiduciary- Third party legally appointed to prudently manage account

Fiduciary and Custodial accounts can be opened for children and incompetents

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8
Q

Payment and Delivery Designations

A
  1. Transfer and Ship- Registered in customers name and shipped to them
  2. Transfer and hold- registered in customer name, broker/dealer holds
  3. Hold in street name- registered in broker name and held by broker
  4. Delivery versus payment- Delivered to a bank against payment. Cash on delivery settlement
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9
Q

Direct Registration System

A

Offering of the Depository Trust Company

Allows owners to hold securities on the books and records of the issuer or their transfer agent

Delivery of assets electronically between transfer agents and broker dealers

Available to issuers who act as their own transfer agent, transfer agents and Depository Trust company participants

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10
Q

Mailing Regulations

A

Statements and confirmations can be sent to those who have power of attorney if in writing and a duplicate is sent to the client

Firm is able to hold mail for a customer if:

  1. There is written instruction and it’s less than three months (requests for longer can be granted, not for convenience)
  2. Member firm informs of alternate methods to view activity in account
  3. Verifies that request still applies periodically

Firms not required to hold

Must be able to communicate with client

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11
Q

If a firm receives instructions from a client by email, what should it do?

A

A firm should have established guidelines regarding supervisory control of funds or securities

In regards to email correspondence, a firm should do the following:

  1. Make a method to verify an email
  2. A method to identify and respond to red flag emails, that are out of ordinary customer interactions
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12
Q

Cash Account

A

Basic investment account

Customer pays in full for securities

Personal retirement accounts, corp retirement accounts and custodial accounts must be cash accounts

Only signature required is that of principal

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13
Q

Margin Account

A

Allows an investor to borrow money for investing

Margin refers to minimal amount of cash needed to be on hand

Customer signature required along with principal

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14
Q

Corporate Account

A

Registered Rep must establish:

  1. Business legal right to open an investment account
  2. Indication of any limitations put on account by shareholders or court
  3. Who will represent the business in investing activities

Must receive a corporate charter and corp resolution (establishes ability to open)

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15
Q

Fee based accounts

A

Only charges a single fee or a percent of assets instead of commission

Only appropriate for those doing a moderate amount of trading

Must provide customers with a disclosure of the services and cost of account

NOT A WRAP ACCOUNT

Wrap accounts provide a group of services such as AA, portfolio management, execution, admin for a single fee

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16
Q

Prime brokerage account

A

Account where a customer (usually an institution) designated one firm to provide custody of securities (prime broker), and another to execute trades (executing broker(

Prime broker Must sign an agreement

Prime broker then enters into agreements with executing brokers named by customer

Prime brokers provide trade confirmations and account statements

Offered to more active trading clients like a hedge fund

Often includes special services such as: security lending, margin financing, trade processing, operation support

Usual users are hedge funds

Provide Clearing service and lending on margin

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17
Q

Numbered Accounts

A

Customer can be identified by a number or symbol instead of name

Must supply other info and sign form to identify self

Celebrities sometimes use to preserve anonymity

Does not have to be approved by FINRA

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18
Q

Guaranteed accounts

A

Cash and margin accounts are considered one account

If a customer wants to open another, the other account must guarentee each other if not linked to another person

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19
Q

Account Transfers

A

To transfer an account the new broker/dealer notifies old

Old firm has one day to validate the request or take exception to if social doesn’t match, account title doesn’t math or customer signature is improper

Transfer is validated when security holding are sent back, all accounts freeze except options expiring in 7 days or less

3 business days allowed to transfer

Once transfer instructions are validated, all new trades are made with new firm even if assets haven’t been transferred

Automated Customer Account Transfer Service can be used to accomplish transfer and validation

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20
Q

FINRA Requirements regarding employees of broker dealers and spouses/minor children

A

Person Must notify employer and executing member before opening account with another broker/dealer

Executing firm must notify employing firm before transactions occur and supply confirms

Employing firm can request duplicates of account info as well

21
Q

MSRB Requirements

A

Employee must notify if opening an account with another firm prior to opening

Must receive prior permission

Must supply employer with duplicate confirmations and any other material if requested

22
Q

Specific testable topics

A

Principal must approve every new account

Approval does not have to take place before first trade (under FINRA the executing member will notify before execution)

One day to notify and three days to carry out in an account transfer

Cash accounts are sometimes referred to as special because before the market crash in 1929, all accounts were margin

23
Q

Registered names

A

Owners of the account, only individuals allowed to access or control of investments

24
Q

Single Account

A

One beneficial owner

Account holder is only person with control and ability to request distribution

Transfer on Death allows registered owner to pass all or portion of assets to a beneficiary, even if will is not authenticated

TOD avoids probate

25
Q

Joint account

A

Two or more adults are apportioned some sort of control

Joint account agreement must be signed and designated either tenants in common (TIC) or Joint Tenants with right of survivorship (JTWROS)

Require signature of both owners

Checks must be made payable to names on account and endorsed by both to deposit

Good delivery form for securities also requires both signatures

26
Q

Tenants in Common

A

Deceased tenants interest not passed to other tenant, specified interest in account

Tenants have divided interest

27
Q

Joint Tenants with Right of Survivorship

A

Deceased interest passed to surviving tenants

All parties have undivided interest

28
Q

Community Property

A

Marital property in specific states is owned jointly by both spouses

Joint ownership is automatically assumed

Absent of anything stating otherwise

Exception is inheritances gifts or property owned pre marriage

Lower capital gains tax when property is dissolved by surviving spouse

29
Q

Partnership accounts

A

Unincorporated Association of 2+ individuals

May frequently open cash, margin, retirement accounts

Partnership agreement designates who can make transactions

Must disclose limitations if opening a margin account

Similar to corporate resolution

30
Q

Fiduciary and custodial accounts

A

A person other than the owner initiates trades

Most familiar example of fiduciary account is a trust

Account is for the benefit of the owner, but the owner has little control

Fiduciary can be reimbursed for a management fee

Custodial relationship must be evident when registered

Beneficial SS is used

31
Q

Fiduciary

A

Any legal person appointed to look over an account. Examples include:

  1. Trustee designated
  2. Executor of a will
  3. Administrator appointed to liquidate an estate without a will
  4. Guardian designated to handle minors affairs
  5. Custodian of UGMA or UTMA account
  6. Receiver in bankruptcy
  7. Conservator for incompetent

May require court certification
Trust agreement needed in a trust account
No documentation needed for UGMA or UTMA
Speculative transactions are usually not permitted
Margin only allowed if established in court docs
Many states provide legal list of securities
May charge reasonable fee

32
Q

Power of Attorney

A

If a person is not named on account, written authorization must be filed with broker

Full power- Ability to Deposit or withdraw cash, make investment decisions

Limited power- document specifies power, no withdrawal of assets, but can make buy/sell orders

Durable- will survive deceleration of incompetence

33
Q

Discretionary Account

A

Gives registered rep authority to decide security holdings in an account.

Authority to decide what security, # of shares and whether to buy or sell

Does not apply to timing the market or price

Must file trade authorization or limited power of attorney. Customer can still trade

Discretionary orders must be identified
Record of transaction must be kept
No excessive trading or churning
Supervisor must be appointed

34
Q

Non Conventional Investments

A

Do not fit a common category and include:
Hedge Funds
Distressed Debt
Equity linked notes

FINRA requires proper due diligence be done before a discretionary authority can trade these for a customer

May require prior written consent

35
Q

Identifying a discretionary order

A

Discretionary if one of three As is missing

  1. Activity (buy or sell)
  2. Amount (number of shares)
  3. Asset (the security)

Price is not included, nor is time rather it’s a market not held order

36
Q

Market not held order

A

If a customer gives authority of time or price, it is a market not hold order

Must be executed on day the order is received

NOT DISCRETIONARY

37
Q

Death of Account Holder

A

Open orders are cancelled and assets are frozen

Account marked deceased

Discretionary authority ends

To release the assets, all documents are needed:

  1. Death certificate
  2. Inheritance tax waiver
  3. Letters testamentary

Unless it’s a JTWROS, where only death certificate is needed

In a Tenant in common account, documentation is required to unfreeze, other tenant has to wait

In a partnership, an amended partnership agreement usually has to be filed

38
Q

Uniform Gift to Minors Act (UGMA)

Uniform Transfers to Minors Act (UTMA)

A

Adult acts as a custodian for a minor

Any kind of security or cash may be given to account without limitation

Property transferred upon coming of age in UGMA

Property can be held until 25 or 21 (depends on state) under UTMA before transfer is made

UGMA and UTMA securities are given an indefeasible title (gift cannot be taken back by giver or given back)

Securities in the accounts are managed by custodian. Custodian can use property in any way that is deemed proper for the child. Rearing expenses not included.

Only one custodian (individual) allowed and one minor

Minor can benefit from more than one account, custodian can make other accounts

Minors social is required for opening account

Securities in the account are registered like:
“Joan Smith as custodian for Brenda Smith”

The account is a cash account not margin

All money must be invested

Stock subscription or warrants must be exercised or sold

Minors will be taxed on the account at parent rate until reaching age of 18. Parent responsibility to see that the taxes be paid (but not by them)

All cash proceeds must be reinvested, warrants are to be sold or exercised

Account state is needed in opening of account

If minor dies the securities are passed to the minors estate not to parents or custodian estate

39
Q

When a customer wishes to open an account as guardian, you would ask for

A

A copy of the court order and other guardian papers to open the account

40
Q

Discretionary accounts

A

Must be reviewed frequently and must be approved by a principal of the firm

Orders must be approved on the day of the trade

41
Q

Account that allows registered owner to pass all or a portion of the account upon death to the beneficiary

A

Transfer of Death!

JTWROS would be transferred to other account member

42
Q

To open a corporate account you must have

A

A copy of the corporate resolution
A new account Form
And a copy of the corporate chartered

43
Q

How often should financial institution policy be sent out

A

At least annually

44
Q

Order tickets

A

Should be marked as solicited or unsolicited

45
Q

Account Record

A

Should be provided within 30 days of opening an account

If problem, customer should receive updated within 30 days

Should be updated every 36 months at least

46
Q

FINRA Rules regarding opening a new account with a different firm (employee)

A

The employee must receive prior written permission from employing member firm

The employing member must receive duplicated statement

The employing member can request confirmations in writing

The employing firm must be notified in writing for intent to open account

47
Q

FBO accounts

A

An adult cannot open an account for another adult even if the other adult is family

48
Q

Margin transactions in a trust account

A

Must be specifically provided for in the underlying documentation of the trust

49
Q

FINRA rules on entering an unsuitable trade

A

Mark unsolicited

Written information is not needed to execute

Series 7- Passed with 83% (19 decks)

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