Customer Accounts

Question 1

Opening Customer Accounts

Answer 1

• new account form to gather essential facts
• signed by RR and principal
• principal does NOT need to sign before activity
• customer signature required for margin or options accounts

Question 2

New Account Documentation

Answer 2

REQUIRED:
- name and residence (not P.O.Box)
- if of legal age
- signature of RR opening account
- signature of principal
REASONABLE EFFORT (prior to settlement date of initial)
- taxpayer ID, such as SSN
- occupation and employer name and address
- where customer associated with another member
- info used to make recs, such as invest back, taxt status, and investment objectives
** Educational background not needed
** if no SSN, IRS requires to withhold a certain percentage

Question 3

Arbitration Clauses

Answer 3

• many new account forms contain a clause that obligates the customer to submit future disputes with the rep or the firm to binding arbitration
• if included, must be HIGHLIGHTED and preceded by proper disclosure
• copy of agreement must be given to customer and customer must sign form acknowledging receipt

Question 4

Investment Objective_ Income

Answer 4

• investments that produce steady, reliable stream of cash

- ex: bonds, utility stocks, annuities

Question 5

Investment Objective_ Growth

Answer 5

• capital appreciation

- ex: common stock

Question 6

Investment Objective_ Preservation of Capital

Answer 6

• primarily concerned with safety

- ex: US Treasury bills or money- market mutual funds

Question 7

Investment Objective_ Tax Relief

Answer 7

• high income earners who are subject to higher taxes

- ex: muni bonds, or tax deferred investments

Question 8

Investment Objective_ Risk Tolerance

Answer 8

• comfort level with risk

Question 9

Investment Objective_ Time Horizon

Answer 9

• short and long term liquidity needs

Question 10

Individual Account

Answer 10

• opened by and for one person

- only authorized person, unless third party is authorized

Question 11

Joint Account

Answer 11

• more than one owner for record
• each owner can initiate activity, however all signature required and check should be to all parties
• new account info for each owner should be obtained
• however, ONE account number and ONE social

Question 12

Joint Tenants with Right of Survivorship vs. Tenants in Common

Answer 12

JTWROS: both own jointly, one dies, other gets whole
TIC: ownership may be proportional to tenant’s contribution and deceased owner’s interest will pass to estate

Question 13

Corporate Accounts

Answer 13

• RR must be sure person opening account for corporation is authorized to do so, by obtaining a copy of the corporate resolution

Question 14

Partnership Accounts

Answer 14

• information about each partner must be obtained
• all partners should sign where necessary and a copy of partnership agreement should be kept on file
• partnership must also specify which partners are authorized to execute transactions

Question 15

Fiduciary Accounts

Answer 15

• someone who acts on behalf of and for the benefit of someone else
• fiduciaries should provide documentation of their authority

Question 16

Accounts for Incompetents

Answer 16

• incompetents are persons who have been declared by a court as unable to handle their own affairs

Question 17

Accounts for Minors

Answer 17

• member firms will not allow minor to open an account in their own name
• accounts for minor opened under Uniform Gifts to Minors Act:
• adult donor gives an irrevocable gift of cash or securities to a minor and appoints an adult to act as custodian
• only one minor and one custodian per account
• ** account may be in minors SSN
• may not be margin accounts and uncovered short prohibited
• if custodian dies, court will appoint new one
• when minor turn 18, custodian should transfer the securities to the beneficial owner’s individual name

Question 18

Trading Authorization

Answer 18

• power of attorney allowing a designated person to trade the account
• broker dealer must receive a written trading authorization signed by the account owner PRIOR to permitting the authorized person to trade in the account
• firm should also obtain signature of each authorized person and the date the trading authority was granted

Question 19

Discretionary Accounts

Answer 19

• when the RR is the authorized third party, account generally referred to as a discretionary account
• if firm permits this, customer and principal must approve the discretionary authorization in writing BEFORE it become effective

Question 20

RR May Accept Verbal Authorization When…

Answer 20

customer:

1. selects the specific security
2. decides whether to buy or sell the security
3. specifies the number of shares, leaving discretion only as to TIME and/or PRICE