Customer Accounts Flashcards
All the following are required to open a trust account, except:
A
Trust agreement
B
Attorney
C
Beneficiary
D
Trustee
B
Attorney
Trust accounts are established by a grantor who provides the investment. The trustee acts as the fiduciary and manages the assets on behalf of a beneficiary. All transactions should be based on the beneficiary’s needs, not the trustee’s needs. A trust agreement is required to open the account and names both the trustee and the beneficiary. The agreement specifies the trading authority of the trustee, who may also be the grantor. Though most trusts are established by trust attorneys, this is not a requirement.
Which of the following may be purchased in a margin account?
A
XYZ Corporation IPO
B
A stock traded on the NYSE
C
DEF Income Fund Class B shares
D
ABC Growth Fund Class A shares
B
A stock traded on the NYSE
A margin account is a brokerage account in which the broker-dealer lends the customer money to buy securities for their account (long margin transaction) or lends the customer’s securities to sell in the market (short margin transaction). Marginable securities include those securities traded on the NYSE and Nasdaq. Under current margin regulation, new issues, including mutual funds, cannot be margined. The rule states that new issues may not be purchased on margin but may be borrowed against once they have been held for at least 30 days.
Contributions that exceed the allowable amount into qualified retirement plans:
A
Are subject to a 6% excess contribution penalty tax in the year the contribution was made
B
Will increase the investors taxable income for the current tax year
C
Are subject to a 6% excess contribution penalty tax until the excess is withdrawn
D
Are subject to a 10% excess contribution penalty tax until the excess is withdrawn
C
Are subject to a 6% excess contribution penalty tax until the excess is withdrawn
Qualified plans are subject to annual contribution limits that are adjusted for inflation. Contributions that exceed the required limit are subject to an annual 6% excess contribution penalty tax until the excess is withdrawn.
How much may be contributed to a Coverdell education savings account per year per beneficiary?
A
Up to $500 in only 1 ESA, with funding limited to only 1 contributor
B
Up to $15,000 in each ESA, with unlimited numbers of IRAs and contributors
C
Up to $2,000 per contributor
D
Up to $2,000 total per beneficiary with any number of contributors
D
Up to $2,000 total per beneficiary with any number of contributors
For any beneficiary, total contributions to ESAs must not exceed $2,000. The number of ESAs and contributors are not limited.
Which of the following is not permitted without client approval in a limited discretionary account?
A
Remove $300
B
Redeem 300 shares of the XYZ Fund
C
Purchase a speculative growth fund
D
Buy 200 shares of the ABC Fund
A
Remove $300
Limited discretion (limited POA) allows the RR to authorize transactions in the account without client approval. However, those transactions must be suitable based on the customer’s financial situation, investment objectives, and risk tolerance. Limited discretion does not allow the RR to remove or add funds to the account without client approval. This activity is allowed in an account established under full discretion (full POA).
What is the most common type of order?
A
Stop limit
B
Stop
C
Market
D
Limit
C
Market
A market order is the most common type of order. It is an order that does not specify a price and is filled at the current bid or ask price. These types of orders are executed immediately, or at the next available price, and are cancelled if not filled by the end of the trading day. Limit orders are either buy limit orders or sell limit orders. When placing a limit order, the investor is choosing a price that is their “limit.” They want either that price or better. A stop order is a type of order that is placed to stop losses that may occur. It is placed to protect the gains in a long or short position. Once the stock hits that price, the order becomes a market order and will trade at the next available price. Stop limit orders combine limit orders and stop orders, and they function in a similar manner as stop orders. The main difference is, when the stock hits the stop price, it now becomes a limit order, instead of a market order.
A customer of a broker-dealer purchased shares of a mutual fund. Under what circumstances may credit be extended on the shares?
A
The customer has owned the shares for 30 days or more
B
The shares are purchased through dividend reinvestment
C
The broker-dealer arranges for a private loan
D
The broker-dealer gets less than 10% commission
A
The customer has owned the shares for 30 days or more
Credit may be extended on mutual fund shares held more than 30 days. However, credit may not be extended on the purchase of new mutual fund shares, and the broker-dealer may not try to get around the restrictions by arranging for loans by others.
Whose name and Social Security number appears on an account under the Uniform Gifts to Minors Act?
A
An adult
B
The donor
C
The minor
D
The custodian
C
The minor
The minor’s name and Social Security number are both listed on the account. The custodian’s name, but not their Social Security number, will appear. Also, the name of the state of the child’s residence must be included in the account registration.
Which statement is false regarding trading authorization over a customer account?
A
A customer’s spouse may have written authorization over the account
B
A broker-dealer may have full written discretion over the account
C
One’s CPA may have limited written authorization over the account
D
No one other than the broker-dealer may have written authorization over the account
D
No one other than the broker-dealer may have written authorization over the account
An investor may appoint anyone they desire to have control over their account. No one has discretion over their account without the customer’s specific written authorization.
Your customer will be traveling for the next 2 months and requests that all mail be held for that time. Which of the following statements is true?
A
This request cannot be honored because traveling is not a valid reason to hold mail
B
This request must be made in writing for it to be honored
C
This request cannot be honored because mail cannot be held for more than 30 days
D
This request can be honored verbally because it is for less than 3 months
B
This request must be made in writing for it to be honored
A broker-dealer may hold a customer’s mail for a specific time period specified by the customer, even if greater than 3 months, if the customer requests in writing. If the customer plans on having mail held for more than 3 consecutive months, the customer must provide ample reasoning for the hold.
Which of the following pays income taxes at the corporate rate?
A
General partnerships
B
S corporations
C
C corporations
D
All corporations
C
C corporations
C corporations pay income tax at the corporate rate before dividends are paid to shareholders. Custodial accounts may be subject to taxation at the custodian’s tax rate if earnings are above an annually adjusted threshold. General partnerships and S corporations pass pretax income to the owners, who then pay taxes on the earnings at their personal rates.
What is required for a member firm to exercise discretionary power on behalf of a client?
A
A signed stock power
B
Authority granted verbally by the customer
C
Written authorization from a principal of the firm
D
Written authorization from the client
D
Written authorization from the client
Discretion may only be granted by the account owner in writing, traditionally through a power of attorney. A stock power is an endorsement for a stock certificate. Verbal discretionary authority cannot be given by the broker-dealer customer, it must always be in writing
According to industry regulations, which of the following is not required when opening a new customer account?
A
Customer’s signature
B
Customer’s social security number
C
Customer’s street address
D
Customer’s date of birth
A
Customer’s signature
According to industry regulations, a broker-dealer must obtain a customer’s name and address. In addition, the BD must obtain the customer’s date of birth and Social Security number. Industry rules do not require the customer’s signature on a new account application. The only signature required is the signature of a principal of the BD.
A married couple wanted to open a joint account at a neighboring broker-dealer firm. One of the spouses could not attend the meeting since they were out of the country on business. Which of the following statements concerning who must sign the new account form is correct?
A
A principal must sign the form
B
Both spouses must sign the form
C
The account opening registered rep must sign the form
D
Either spouse may sign the form
A
A principal must sign the form
According to FINRA rules, the only signature required on a new account application is that of the approving principal. Industry rules do not require the customer’s signature, nor the signature of the registered representative on the new account application.
A short sale is:
A
A sale of borrowed securities that must be replaced later
B
A sale after holding the investment for a short term
C
A sale to cover an option position
D
A sale to meet a margin call
A
A sale of borrowed securities that must be replaced later
A short sale happens when an investor sells shares of stock that they currently do not own. They borrow the shares from a stock lender (broker-dealer). The investor is then obligated to return the borrowed shares later.
