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Series 7 > Customer Accounts > Flashcards

Customer Accounts Flashcards

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Series 7 Top-off Exam flashcards
1
Q

What basic information is needed for a new account form?

A
  • Customer name and address
  • whether cash or margin account
  • DOB
  • SSN or Tax ID (if joint, only 1 SSN needed)
  • Occupation (especially if bank/brokerage/etc employee)
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2
Q

How much ownership would someone need to have in a public company to be considered an “insider”?

A

10% or more

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3
Q

Program designed to verify a customer’s identity is the _______ program

A

CIP (Customer Identity Program)

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4
Q

Each customer must be notified at the time the account is ____ that their account is covered by ______

A

opened, covered by SPIC (Securities Investor Protection Corporation) insurance

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5
Q

It is mandatory that a customer sign an arbitration agreement. T/F?

A

False. This is not mandatory but many firms do it

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6
Q

If customer is going to sign an arbitration agreement, they must do so within ___ days of opening an account.

A

30 days

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7
Q

FINRA Rule 2090 is the “______” rule and requires that you know and retain “essential facts” relative to each customer, which are:

A

“Know your customer” rule; essential facts are those required to:

  • effectively service customer’s account
  • act in accordance with any special handling instructions
  • understand the authority of each person acting on behalf of the customer
  • comply with applicable laws, regs, and rules
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8
Q

SEC Rule 17a-3 requires that the following info be collected from each new client:

A
  • name
  • tax id
  • address
  • dob
  • phone #
  • occupation and employer
  • annual income
  • net worth (excluding primary residence)
  • investment objectives
  • signature of associated person responsible for the account
  • signature of the customer, if discretionary
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9
Q

A customer signature is required to open the account. T/F

A

False. A registered rep can sign to open the account, UNLESS it is discretionary in which case you do need it

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10
Q

Customer must verify account profile within ___ days and is sent the account profile every ___ months thereafter

A

30 days, 36 months

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11
Q

FINRA investment profile includes:

A
  • objectives
  • experience
  • age
  • financial situation and needs
  • tax status
  • time horizon
  • liquidity needs
  • risk tolerance
  • any other pertinent info
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12
Q

Reasonable-basis suitability =

A
  • covers the “big picture”
  • prepare a list of recommended products and strategies
  • must know the features of all these recommendations
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13
Q

Customer-specific suitability =

A
  • once reasonable-basis is established, that investment strategy has to make sense for each individual customer and their investment profile
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14
Q

Quantitative-suitability =

A
  • means you can’t recommend a “churn” strategy with excessive trading
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15
Q

Personal balance sheet test

A

can’t recommend a strategy if it exceeds that customer’s liquid net worth

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16
Q

The suitability rule does not apply to:

A
  • institutional customers
  • unsolicited trades
  • investment analysis tools (retirement calculators and the such)
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17
Q

Structured products typically have:

A
  • a bond portion which pays interest bsed on performance of a well known index
  • an embedded option to sell it back at par at maturity
  • often illiquid, so are listed as an ETN (exchange traded note) on an exchange such as the AMEX
  • main risk is credit risk (typical 5-7 year maturity) - subject to default risk
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18
Q

A “pattern” day trader is someone who_____

A

engages in 4 or more day trades in a 5 business day period

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19
Q

For a day trader, the firm must give the customer a statement that says:

A
  • day trading is extremely risky
  • be wary of exaggerated claims on profits
  • requires knowledge of markets and firm ops
  • will generate substantial commissions
  • trading on margin can result in larger losses than one’s initial investment
  • persons who day trade for others must be registered as an investment adviser or a BD
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20
Q

If you know day trading is happening in an account but it hasn’t been registered as such, must approve the account no later than __ days following that knowledge

A

10 days

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21
Q

If opening a NMFBA, must provide a _____ to the customer

A

disclosure

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22
Q

Must conduct an ______ account review with the customer

A

annual

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23
Q

NMFBA are considered an advisory product. T/F

A

True. They are considered advisory, not brokerage. Must be registered as an IA

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24
Q

What are the “red flag” products for senior citizens?

A
  • variable annuities, equity indexed annuities, real estate limited partnerships
  • variable life settlements
  • CDOs
  • mortgage residence to obtain $ for investing
  • use retirement savings for high-risk investments
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25
Q

If you suspect a senior citizen has diminished capacity, you should:

A
  • document it and escalate it
  • must have a designated person to escalate it to
  • stop trading in account until concern no longer exists
  • communicate with next of kin emergency contact
  • maintain frequent contact with the investor to assess situation
  • consult appropriate state statutes to determine next steps
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26
Q

Before an options account can be opened, customer needs to receive the _____

A

Options Disclosure Document (ODD)

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27
Q

Depending on customer’s financial situation and experience, the customer wishing to trade options will be given a _____

A

Level. less sophisticated may only be able to buy calls and puts

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28
Q

Once a level for options trading is determined, customer is sent a ______ for signature and must return it in ____ days

A

options agreement, 15 days

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29
Q

Both the ____ and the ____ must sign the new options account form

A

registered rep and registered options principal (ROP)

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30
Q

For munis, you must obtain a customer’s ______

A

tax status

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31
Q

For munis, if information cannot be obtained for a suitability determination, recommendations _____ be made

A

CANNOT - except for unsolicited trades

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32
Q

Accounts must be signed by the _____

A

branch manager - can trade in all things

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33
Q

New accounts signed by a Series 24 manager cannot trade in

A

options

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34
Q

Margin securities are held in ____ name

A

street name - the name of the brokerage firm

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35
Q

For a margin account, the margin agreement must be signed ______ the first settlement of the first trade

A

at or before

36
Q

In addition to a margin agreemetn form, the firm can require a customer to sign a ______ to trade on margin

A

a loan consent agreement - gives firm right to loan out securities for short sales

37
Q

For margin trading, must also give a customer a _____ disclosure statement

A

credit - basically tells them the terms of the loan the firm will make to them

38
Q

For joint accounts, there are two options for account ownership:

A
  • joint tenancy with rights of survivorship (each person owns an undivided interest)
  • tenancy in common (each person specifies a particular interest in the account)
39
Q

TOD stands for

A

transfer on death - helps avoid mucky situations with benes and also avoids probate since the estate is bypassed

40
Q

To open an LP account, you only need the signature of the _____

A

GP

41
Q

Two types of trading authorization are:

A
  • limited (can buy and sell, but can’t withdraw funds)

- full (can buy and sell and can withdraw funds)

42
Q

POA ceases upon death of the grantor. T/F

A

True

43
Q

Types of fiduciary accounts

A
  • trusts
  • guardian
  • estate administrator
  • conservator for incompetent
  • executor of estate
  • receiver in bankruptcy
44
Q

Fiduciaries can or cannot give power to trade to another person?

A

CANNOT

45
Q

Fiduciary accounts are generally ______ from margin transactions

A

prohibited

46
Q

Fiduciaries are limited to the _______ man rule for investment options

A

prudent - basically means they can only employ modern portfolio theory

47
Q

For a discretionary account, the authorization form must be signed ______ any trading occurs.

A

BEFORE

48
Q

A trade is considered discretionary if the adviser is choosing more than the ____ and _____

A

price and time of execution

49
Q

For mkt-not held orders, what is the FINRA rule regarding execution?

A

Must be executed that day. If goes into second day, then must have written POA

50
Q

Rule 407 requires that prior written consent of the _____ is required for accounts opened by ______ of member firms or their _______

A

consent of the employer is needed to accounts opened by employees of member firms or their spouses/family/etc.

51
Q

Rule 407 requires that duplicate _____ and _____ be sent to the employer promptly

A

trade confirmations and account statements

52
Q

Written consent of the employer is also required if an officer or employee of an NYSE member firm is trying to open an account:

A
  • domestic or foreign BD
  • investment adviser
  • bank
  • financial institution
53
Q

For accounts opened by other muni employees, trade confirmations ______ be sent in duplicate

A

MUST, same for CBOE firms

54
Q

The UGMA refers to the

A

Uniform Gifts to Minors Act

55
Q

Rules for custodian accounts (UGMA)

A
  • any adult can open for a minor, doesn’t have to be a parent
  • all securities must be registered in account name (no bearer securities)
  • cash balances cannot be held for an extended amount of time
  • one custodian for one minor on an account
  • no margin trading
  • gifts are irrevocable
  • SSN of the minor appears on the account
  • prudent man law applies
  • at legal age, accounts transfers into name of new adult
  • no third party trading authorization
  • you can sell covered calls
  • cannot let rights expire worthless
56
Q

An omnibus account is for multiple client accounts for one _________

A

investment adviser

57
Q

Wrap accounts charge one ____ for everything

A

one fee

58
Q

Confirms for trades need to be sent no later than _____

A

the day after the trade date for regular way trades

59
Q

statements must be mailed in any month during which a _____ took place, otherwise they may be mailed ______

A

trade took place, otherwise can mail quaterly

60
Q

A firm may hold a customer’s mail for up to ____ months

A

3 months in a 12 month period

61
Q

RR need to hold current records of

A
  • new account forms
  • chronological record of trades
  • current account statement
62
Q

Accounts can be closed if specifically _____

A

requested in writing by the customer

63
Q

With an account transfer, the receiving firm has ____ to complete the transfer after the validation is complete

A

3 days

64
Q

if they cannot deliver all the securities on transfer (ie a margin account where shares have been sold short), the firm has _____ to buy in the shares and deliver them to the new firm

A

10 days

65
Q

If a customer dies, RR must:

A
  • cancel all open orders
  • freeze account from removal of assets
  • note customer is deceased on form
  • await further instructions from the executor
66
Q

Once an account is closed, new account forms must be retained for _____, customer statements for _____

A

3 years for account forms, 6 years for customer statements

67
Q

SAR reports must be filed within _____ of the date initially detected

A

30 days

68
Q

SEC Reg SP (Statement of Privacy)

A

must provide retail customers with notice of firm’s privacy policies and practices
- delivered initially and then annually

69
Q

Who are the first, second, and third parties to a brokerage account?

A 
First = broker
Second = customer
Third = any one other than broker or customer
70
Q

Instructions by muni employers must be followed when opening an account for one of their employees. T/F

A

True

71
Q

Trusts are legal entities. T/F

A

True, they are taxed by the IRS and have their own tax ID #s

72
Q

Custodian account is?

A

An account opened for the benefit of one minor - can only be a cash account

73
Q

A guardian account is the same as a ______ account

A

conservator account

74
Q

A guardian account is?

A

an account opened for an incompetent or a minor with a designated guardian

75
Q

Taxes on a custodian account are the responsibility of the _____

A

Minor - they are not deferred until legal age and are on the minor to pay

76
Q

Taxes on income from a custodian account are taxed at the rate of the ________

A

parents

77
Q

The required times that need to be on a ticket record for a trade are:

A
  • receipt
  • entry
  • execution
    DO NOT NEED CONFIRMATION TIME
78
Q

To send confirmations to a person designated with POA, you need a written request from the ________

A

customer

79
Q

If trades need to happen in an account where the person has died, what forms do you need?

A
  • death certificate
  • executor’s letter
  • affidavit of domicile
80
Q

the purchase and sales department does _____

A

prepares and mails customer confirmations

81
Q

the margin department does ______

A

keeps a record of securities positions, and debit and credit balances

82
Q

the reorganization department does ______

A

informs customers of takeovers or tender offers

83
Q

the order department does _______

A

routes orders to the appropriate exchanges and send execution confirmations back to the person PLACING the order

84
Q

A SAR is required to be reported to the SEC. T/F

A

False. Reports to the FinCEN

85
Q

OFAC (Office of Foreign Asset Control) imposes ______

A

sanctions against hostile foreign countries and groups

Series 7 (34 decks)

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