Customer Account Flashcards
Arbitration Agreement
- not required
- if customer receives it, must be signed within 30 days
BCP Plan
- must be provided at account opening, and provided on firm;s website
SIPC
- must be provided at account opening, and annually thereafter
Regulation BI
- ALWAYS PUT CUSTOMERS BEST INTEREST FIRST
BA Suitibility standard
- broker-dealers held to a suitability standard
- takes the opposite side of the transaction
- can charge markups and commissions
IAs- Fiduciary standard
- regulated by state
- mus take the same side as inventory
- can only charge fixed fees
FORM CRS
- details if it is a BA transaction or IA transaction
- the fees and costs customer will pay
- whether firm has discplinary events
- only required for retail clients
- form must be on top and on website
Signatures required on a new form
- registered represenative
- customer signature is not required
Customer must verify account within
30 days
- must be sent every 36 months after
Suitability rules do not apply to
- institutional customers
- unsolicited trades
- investment analysis tools
Structured Products
- derived from a basket of securities
- bond portion ( s& p 500)
- embedded option, sell at maturity
- illiquid
- credit risk
The risk associated with structured products
- credit risk bc there is no underlying portfolio
Day Trading Account
FINRA requires much more detailed communication when opening an account
Pattern Day Trader
- person who engages in 4 or more day trades in 5 days
Day Trader disclosure document
- day trading can be risky
- be wary of exaggerated claims of profits by day trading
- knowledge of securities and operations
- generate substantial commissions to the firm
- losses greater than one’s investment
- must be IA or BD
Approval of day trading account
- no later than 10 days following the initial notice of the member day trading
Non managed fee-based accounts
- flat annual fee for all trade executions
- must be provided with a disclosure document, describing the types of programs available
- obligated to determine if the customer is suitable
Annual account review
- member firm monitor account activity every 12 months for customers not placed into an appropriate account
If the annual review determines that the NFBMA account is costly,
- customer should be contaced and the situation discussed
- ## if the customer wishes to keep the account, then follow the customer’s command
Senior citizen suitability
- customer must fully understand the product
- firm does not have obligation to shield customer from risk if they want to take
Unsuitable recommendations/ red flags for senior citizens
- purchase variable annuities, equity indexes, and RELPS
- Purchase variable life settlements
- purchase complex structured products, CDOs.
- mortgage their residence to obtain fund for other investments
- use retirement savings, early withdrawals
Bogus Certificates
- certified senior advisor
- certified financial gentrologist
- senior specialist
- retirement specialist
Senior citizen and diminished mental capacity
- document the suspected diminished mental capacity, and escalate immeditely
- firm should have a clearly designed member on who to contact in these situations
Steps to do after escalating a diminished mental capacity
- stop trading in the account until the concern no longer exists
- communicated with trusted contact or POA
- Maintain frequent contact with the investor
- consult appropriate state statutes to figure out the next step
Financial exploitation of senior citizens
- allows member firms to place temporary holds on disbursements from client accounts when fraud is suspected
- individuals 65 or older
- individuals 18 or older with a diminished mental capacity
Examples of finacial exploitation
- unauthorized or wrongful taking of funds
- attempt to maintain control of the account by deception
- attempt to convert/retitle the account owner’s funds, assets, or property
If a firm expects any of the financial exploitation acitivies they may
Place a 15 day hold on disbursements from the account that seem suscpicous
- if member review expects the disbursements are suspicious they can place another 10 day hold
Options disclosure document
- must be received before account opening, date the form was sent must be on form
Options agreement
must be signed and returned no later than 15 days after account opening
Level 1
can only sell covered calls or buy puts only to hedge
level 2
can buy calls and puts to speculate
level 3
can take spread positions
level 4
can do anything, naked or covered
In order to move up in levels _____
suitability determination must be redone and options agreement must be resigned and dated within 15 days
Special statement for uncovered option writers
Discloses that
- naked call writers have unlimited risk and naked put writers have a substantial risk
- if broker demands additional margin due to adverse market movements, can liquidate customers positions without warning
- if the secondary market were to become unavailable, the writer would be subject to exercise at any time
- uncovered option writers are only suitable for the knowledgeable investors
- the writer of an American style option is subject to exercise at any time, European is subject during the exercise period
New account options form signature
- the registered representative
- the manager of the branch office ROP
MSRB suitability rule
Must have knowledge about the customer’s financial background, tax status, investment objective
determing tax status
- tax bracket and state of residence
under MSRB rules, if a customer refuses to disclose financial status
no recommendations are to be made
- unsolicited trade can still be accepted
If customer wants to place a trade that might not be suitable the RR should
- still place trade if customer wants it
- mark it as unsolicited, and even sometimes phone tape the conversation
Series 9/10 can approve and sign
- new account forms that trade stocks, options, and municipal bonds
General 24 Securities license responsibilities
- can oversee all the firm’s supervisory activities
- approve accounts that trade stocks and municipal bonds NOT OPTIONS!
CBOE requires who to sign a new account form
ROP( series 4) or series 9/10
- no customer signature
MSRB requires who to sign a new account form
- Series 53, se
- Series 9/10 or the series 24
Margin agreement
- must be signed by customer at or prior to first trade settlement in the account
- hypothecation agreement, customer agreement
- pledges the customer securities in the account in return for the margin loan
Loan consent agreement
- allows the firm to loan out customer’s securities for short sales
- usually signed, not mandatory
Credit agreement
- how the debit balance is computed and how interest will be charged on the loan
- signed by customer
Risk Disclosure Document
- explains how margin accounts used borrowed money to magnify returns in a rising market vice versa w a falling market
JWROS
-upon death, the surviving owner maintains full assets
JTIC
-upon the death of one of the owners it can be passed upon will to who they designate
Convenience account
- an elderly parent who has many children, opens an account with one child, and the child can only draw checks for the parent. Upon death, the assets go into the estate
Prime brokerage account
- typically used by hedge funds to consolidate all of their positions with one firm
- can use different executing brokers for its trades, but all are settled by the prime broker
Fiduciary accounts are
CASH ACCOUNTS ONLY, NO MARGIN
discretionary account requires
Written POA before trading take places
Trade is considered to be discretionary if
size and security is chosen
market-not-held orders must be entered that day if given verbally or
written POA is required,
Every discretionary order ticket must be signed __
The appropriate principal promptly
When opening an account for an employee of another member firm under FINRA rules
- written notice to executing member
- written consent of employer member
- dupe confirms and statement sent on request