Customer Accounts Flashcards
A broker-dealer would be required to register with the SEC as an investment adviser if it
[A] publishes recommendations for the purchase or sale of securities and provides such publications free of charge.
[B] recommends the purchase or sale of a security while acting as a broker-dealer.
[C] provides a financial planning service which includes investment advice to its customers and charges a fee for such services.
[D] makes a market in unlisted securities.
[C] provides a financial planning service which includes investment advice to its customers and charges a fee for such services.
If a broker-dealer provides financial planning services and charges a separate fee for such service, it would have to register as an Investment Adviser.
Ch8 Sec3
For purposes of the customer confirmation rule, which of the following is not considered to be a customer?
[A] A bank investment portfolio
[B] An issuer selling a new issue of its securities
[C] A casualty insurance company buying securities for its own account
[D] Individuals who now reside in a foreign country
[B] An issuer selling a new issue of its securities
Issuers are not considered to be customers. Customers purchase shares, issuers distribute shares
Ch8 Sec3
Investment Advisor registration would be required for which of the following?
[A] a lawyer, who instructs a client to liquidate securities in order to satisfy financial obligations
[B] a C.P.A. who advises a friend to buy municipal bonds
[C] a registered representative who gives investment advice for a fee
[D] a professor who recommends an investment strategy during a securities class
[C] a registered representative who gives investment advice for a fee
Giving advice for any type of management fee or fee based business requires registration as an investment advisor.
Ch8 Sec3
Recommendations to a customer:
[A] Must be approved in advance by a principal.
[B] Must be suitable on the basis of the facts disclosed by the customer regarding his other holdings and his financial situation.
[C] Must be approved in advance by a principal and must be suitable on the basis of the facts disclosed by the customer.
[D] Are not covered by FINRA Rules.
[B] Must be suitable on the basis of the facts disclosed by the customer regarding his other holdings and his financial situation.
Recommendations must be suitable according to the client’s financial situation, however prior approval is not required.
Ch8 Sec8
Andy switches from one broker-dealer firm to another. In the process, several of Andy’s clients wish to transfer their accounts to Andy’s new broker-dealer firm. Since Andy has a working relationship with these clients, he wishes to begin to trade in new accounts with these clients prior to completion of new account forms at the new firm. How should Andy’s supervisor handle this situation?
[A] Andy’s supervisor should not be concerned, since rules permit order entry and execution without a new account form all the way up until the time the first statement is sent out to the client.
[B] Andy’s supervisor should be concerned, since rules require a new account form to be completed prior to the execution of any transactions in the account.
[C] Andy’s supervisor should not be concerned, since Andy has a prior business relationship with these clients and since rules permit order entry and execution without a new account form all the way up until the time that the orders in the account are due for settlement.
[D] Andy’s supervisor should be concerned, since rules require a new account form to be completed no later than with confirmation of the first trade in the account.
[B] Andy’s supervisor should be concerned, since rules require a new account form to be completed prior to the execution of any transactions in the account.
Whenever a new account is being opened at a firm, the firm and registered representatives must complete a new account form for the client BEFORE or PRIOR TO the execution of a transaction in the account. Andy’s previous business relationship is irrelevant when it comes to rules regarding opening new accounts at a broker-dealer firm.
Ch8 Sec2
Which of the following is not required on a new account form?
[A] Investment objectives
[B] Education
[C] Customer Tax ID Number
[D] Citizenship
[B] Education
A client does not need an MBA in order to trade securities, they only need money and an understanding of the transactions that will be executed on their behalf, therefore educational background would not be required
Ch8 Sec2
The opening of a discretionary account under FINRA Rules must be approved by a(an):
[A] Regional President
[B] Sales assistant.
[C] the Member or a designated person of the Member
[D] Registered representative with five years’ experience.
[C] the Member or a designated person of the Member
FINRA Rule 2510(b) requires that a Discretionary account be approved in writing by the Member or a Designated person of the Member such as a partner, officer or manager. Registered Representatives cannot act in a supervisory capacity.
Ch8 Sec3
Mrs. Smith set up a Uniform Gifts to Minors Account for her daughter and the custodial account has done very well this past year. The profits and earnings on this account would be reportable on which person’s tax return?
[A] Mrs. Smith’s
[B] Mrs. Smith’s daughter
[C] Mr. Smith
[D] Mr. and Mrs. Smith’s joint tax return
[B] Mrs. Smith’s daughter
In a UGMA/UTMA account the child’s social security number is used and the profits and earnings on the account will be filed on the tax return of the minor. These profits and returns are NOT filed on the donor’s or custodian’s return.
Ch8 Sec3
Which of the following statements about discretionary accounts is NOT true?
[A] Discretionary orders should not be excessive in size or frequency
[B] Discretionary account activity must be reviewed by the firm at frequent intervals
[C] Written discretionary authority must be accepted by the firm and held on file before the first trade
[D] Each discretionary order need not be marked as such
[D] Each discretionary order need not be marked as such
Each discretionary order must be marked as such. All of the other choices are true.
Ch8 Sec3
Which of the following would NOT be considered an investment adviser according to the Investment Advisers Act of 1940?
[A] A registered representative who gives advice but does not charge clients for the advice.
[B] An accountant who gives specific advice and charges clients for the advice.
[C] A registered representative who handles managed accounts and charges clients a management fee for the management of the account.
[D] A registered representative who handles managed accounts and charges clients a wrap-fee for the management of the account.
[A] A registered representative who gives advice but does not charge clients for the advice.
An investment adviser is a person who gives advice and is compensated (including wrap fees) for giving advice but is not compensated based on trade executions.
Ch8 Sec3
One of your clients owns an individual account and does not want any outside influence over the account. The client would like to ensure that probate is avoided in the event that they unexpectedly pass away and has named an immediate family member as the beneficiary of their account. This customer’s needs will be best met by which of the following?
[A] The customer should set up a Joint Tenants with Rights of Survivorship Account.
[B] The customer should set up a Uniform Gifts to Minors Account.
[C] The customer should set up a Transfer on Death agreement for securities in the account.
[D] The customer should set up a Tenants in Common Joint Account.
[C] The customer should set up a Transfer on Death agreement for securities in the account.
The customer wishes to maintain control of the account and avoid probate. The only item listed that provides these two objectives is the transfer on death agreement/registration.
Ch8 Sec3
When a client wishes to open an account to trade equities with a broker-dealer firm, certain signatures are required on the New Account Report form. Who must sign the form?
I. The client opening the account
II. The agent opening the account
III. A principal at the broker-dealer
[A] I only
[B] I and II only
[C] III only
[D] I, II and III
[C] III only
The principal would be required to sign the new account form but the customer and the RR would not.
Ch8 Sec2
All of the following information is required from an individual customer when completing a new account report form EXCEPT
[A] the customer’s residential street address.
[B] the customer’s employer’s name and address.
[C] verification of the identity of the customer.
[D] the source of funds the customer deposits when opening the account.
[D] the source of funds the customer deposits when opening the account.
The source of funds used to open the account is not required. The other information is required.
Ch8 Sec2
What information MUST a telemarketer disclose to the recipient of a cold call according to the Telephone Consumer Protection Act of 1991?
[A] The caller’s and the firm’s names and the firm’s address or telephone numbers.
[B] How the caller got the recipient’s name and telephone number.
[C] The purpose of the call
[D] That the recipient is not on the caller’s do-not-call list.
[A] The caller’s and the firm’s names and the firm’s address or telephone numbers.
The Cold Calling rules require telemarketers to disclose the caller’s name, the firms name and the address or telephone number from where the call is being made.
Ch8 Sec1
FINRA Rules state that a broker-dealer cannot carry a securities account for which of the following:
I. A minor
II. In the name of a person other than the customer
III. A principal or officer of another broker-dealer
[A] I
[B] I and II
[C] II and III
[D] All of the above
[B] I and II
A broker-dealer cannot carry a securities account in the name of a minor or a securities account in the name of a person other than the customer. However, a broker-dealer can carry a securities account for a principal or officer of another broker-dealer. The broker-dealer for whom the principal or officer works would also be notified prior to the account being established.
Ch8 Sec2
According to the Uniform Gift/Transfer to Minors Act, an individual may do which of the following in this type of account?
[A] Gift an unlimited amount of cash.
[B] Only gift up to $3,000 in cash and $10,000 in securities..
[C] Revoke cash gifts only.
[D] Revoke securities gifts only.
[A] Gift an unlimited amount of cash.
There is no limitation on the amount of a gift that may be given to a minor. Any gift made to a minor is irrevocable.
Ch8 Sec3
When reviewing a transfer-on-death registration of an account which one of the following is true?
[A] The securities avoid probate
[B] The securities avoid inheritance taxes
[C] The securities are sheltered from creditors’ claims
[D] The named beneficiary is irrevocably entitled to the securities
[A] The securities avoid probate
Transfer on death registration of an account is where the account is in one party’s name but on death the securities in the account go directly to a beneficiary named in a TOD Agreement, thus avoiding probate. The securities do not avoid inheritance taxes or creditors’ claims. The beneficiary designation is revocable.
Ch8 Sec3
A client opens an account and does NOT sign any form of discretionary authority for the registered representative (RR) handling the account. If no authorization is given by the customer in writing, the RR can exercise discretion as to the
[A] type of security purchased, as long as verbal authorization was received that trading day.
[B] time and price at which the order is executed, as long as verbal authorization was received that trading day.
[C] volume of shares purchased, even on a good until cancelled basis.
[D] margin functionality used on the trade, even on a good until cancelled basis.
[B] time and price at which the order is executed, as long as verbal authorization was received that trading day.
Registered representatives (RRs) are permitted to exercise time and price discretion in a client's account on a good-for-the-day basis. Time and price discretion would require the client to specify the action (buy or sell), volume of shares (e.g., 100 shares), and the specific security (e.g., ABC Corp. Common Stock). RRs are prohibited from exercising discretion in a client's account in relation to the type of security purchased, volume of shares, or use of margin functionality without a written discretionary authorization from the client. Ch8 Sec3
All of the following are true under the Uniform Gifts to Minors Act EXCEPT:
[A] Only an adult may make a gift under the Act.
[B] Original custodian may be donor.
[C] Securities in a custodial account may be kept in a margin account.
[D] Custodial property may be used for the support of the minor.
[C] Securities in a custodial account may be kept in a margin account.
Securities in a custodian account may not be purchased on margin.
Ch8 Sec3
A member firm that carries its own customer accounts is required to send customer account statements at a minimum of quarterly. These statements must include all of the following except
[A] all dividend and interest payments received in the account.
[B] the time of day any order was submitted for execution.
[C] all money credit balances in the account.
[D] the current positions in securities in the account.
[B] the time of day any order was submitted for execution.
FINRA Rule 2231 (previously 2340) states that customer account statements must be sent at least QUARTERLY, regardless if there is any trading activity in the account. Execution price would appear on a statement but not the time the order was placed.
Ch8 Sec5
All of the following are true regarding the conduct of customer accounts except:
[A] Stock held in a custodian account may not be held in street name.
[B] A customer may open a numbered account provided a statement attesting to the ownership of the account is signed.
[C] Stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die.
[D] Margin trading in a fiduciary account requires documentation stating that such trading is permitted.
[C] Stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die.
All statements are true except c, because JTWROS accounts would still be taxable.
Ch8 Sec3
Which of the following is a benefit of an UGMA account?
[A] Lower tax potential on earnings
[B] Tax deferral on contributions
[C] Tax deductions for the donor
[D] Elimination of tax liability
[A] Lower tax potential on earnings
Since the minor may be in a lower tax bracket, there is the potential for lower tax on earnings.
Ch8 Sec3
A “Discretionary Account” refers to a securities account in which:
[A] A customer has authority to choose investments for the firm’s account.
[B] A firm’s employee has authority to choose investments for a customer’s account.
[C] Only unsolicited orders are accepted from a customer.
[D] Discretion is given to a customer concerning when payment will be made for purchases.
[B] A firm’s employee has authority to choose investments for a customer’s account.
In a A “Discretionary Account” the registered representative has the right to choose investments for a customer’s account.
Ch8 Sec3
A registered representative would be allowed to participate in a customer’s profits and losses under which of the following circumstances?
[A] A Discretionary account has been established for the customer
[B] The RR gave the customer a written agreement to cover any losses incurred by the customer in a specific transaction
[C] The RR establishes a joint account with the customer
[D] A UGMA account has been established for the customer
[C] The RR establishes a joint account with the customer
FINRA Rules state that a registered representative may participate in profits and losses if the RR established a joint account with the customer and shares in profits and losses in direct proportion to their financial contribution into the account.
Ch8 Sec4
Bobby is an RR who intends to make a recommendation to one of his clients, Dianne. In the process of reviewing Dianne’s account information, he looks over her social security number, tax status, investment goals and objectives, risk tolerance, and her other investments. Which of the following is a TRUE statement regarding Bobby making a recommendation to Dianne?
[A] While Dianne’s social security number or tax ID number is pertinent when opening an account, it is not a relevant factor when determining suitability of an investment and making a recommendation.
[B] While the Dianne’s tax status is important to making recommendations, it is not particularly important if she is a high net worth client.
[C] Because Dianne already provided Bobby her investment goals and objectives at the time of account opening, it is not crucial that Bobby review these before making a recommendation.
[D] Because Dianne indicated on the new account form that she has a low risk tolerance Bobby should only recommend Treasurys or CDs.
[A] While Dianne’s social security number or tax ID number is pertinent when opening an account, it is not a relevant factor when determining suitability of an investment and making a recommendation.
Though the customer’s social security number or tax ID number is an important part of opening an account, it is not a relevant piece of information when an RR is determining the suitability of an investment or recommendation for a client. Far more important would be the customer’s actual tax status, investment goals and objectives, risk tolerance, and other investments. These should be considered whenever a recommendation is made.
Ch8 Sec2
In order to maintain a margin account, a trust must first:
[A] Be approved by the financial principal
[B] Be permitted to do so in the trust agreement
[C] Be approved by the branch office manager
[D] Have a net worth of at least $2,000
[B] Be permitted to do so in the trust agreement
Margin trading is not permitted in a trust account unless the trust specifically permits it.
Ch8 Sec3
