Customer Accounts Flashcards
Cash Accounts
All trades are paid in full
Margin Account
Client may trade on credit
FINRA New Account Requirements
- Customer name & residence (no PO Box)
- Legal age
- Name of RR (if multiple RRs, each RR responsibility must be recorded)
- Customer is a corporation, partnership or other legal entity, the names of the persons authorized to transact must be recorded
- Signature of partner, officer, or manager (principal) denoting acceptance of the account
Prior to settlement of the initial transaction
A RR must make an effort to obtain:
- SSN/TIN
- Customer occupation & employer’s name & address
- Financial information, such as annual income & net worth
- Investment objectives
Does not apply to institutional accounts
Institutional Account
Defined as an account of a bank, savings & loan association, insurance company, registered investment company, registered investment advisor or any person with total assets of at least $50 million.
Required Signatures
- Industry rules do not require clients to sign new account form when opening a cash account
- Approving principal must sign off on new cash account forms
Pre-dispute Abritration Clause
If a firm elects to include a pre-dispute clause in its new account form, it must be highlighted.
Record keeping Requirements
- The SEC & FINRA require member firms to retain customer records for at least 6 years when updated and when account is closed
Joint Tenant with Right of Survivorship
- Ownership is transferred to the surviving tenant
- Check are made payable to both parties on the account
- Signatures must be obtained from both parties
Joint Tenant in Common
- Ownership is equal amongst all parties
- Can have more than 2 owners
- Ownership passes through to the estate
Community Property Accounts
- Only permitted between legally married couples
- A community property document must be completed
- Subject to State laws
Joint Account Tax Reporting
All tax reporting data is listed under one designated tax ID number that belongs to only one of the account owners
Corporate Accounts
- Must obtain a corporate resolution prior to opening the account
Corporate Resolution
A document created by the board of directors which appoints one or more persons to operate the account
Corporate Charter
A document that certifies whether the corporation is authorized to have a margin or options account
Unicorporated Association Account
- Opened in the name of the owner (can be a business name)
- Ownership is subject to creditor’s claim
Sole Proprietorship Account
- Account opened under the name of the owner
- Ownership is subject to the owner’s personal creditors
Revocable Trust
- Also referred to as a living or inter vivos trust
- May be changed or cancelled at any time
- Assets are transferred at the time of death
- Trust does not reduce taxes, but will avoid probate if funded prior to the grantor’s death
Irrevocable Trust
- Unable to modify or cancel the trust once funds have been deposited
- Trust reduces the donor’s estate taxes and avoids probate
Full POA
- Allowed to place buy/sell orders
- Allowed to make withdrawals from the account
Limited POA
- Allowed to only place buy/sell orders
Non-durable POA
- Terminated if the grantor becomes incapacitated
- Terminated when grantor dies
Durable POA
- Third party’s power to manage another person’s financial affairs continue even if that person becomes incapacitated
- Terminated when grantor dies
Discretionary Accounts
- RR is the authorized third party
- Principal must approve the account
- Account activity must be reviewed by principal frequently
Churning
- Excessive trading by RR
- Frequency and size of transactions is important when deterring if churning is occurring
Non-discretionary Orders
- Verbal authorizations made by clients to sell/buy a security
- Must state all 3 of the following to be considered non-discretionary:
1. Asset (security)
2. Action (buy/sell)
3. Amount
Not-held Orders
- Orders that provide time or price
Pattern Day Trader
Any customer who executes 4 or more day trades over a 5 business day period
Day Trading
- Purchasing & selling or selling & purchasing of the same security on the same day
- Exceptions:
a. long position held overnight and sold next day prior to new purchase of the same security
b. short position that is held overnight and purchased the next day prior to any new sale of the security
Wrap Account
- A fee of 1-3% is charged by a B/D to cover for portfolio management, administrative and transaction costs
- Account is managed by an investment advisor
- Appropriate for a client who wishes to trade frequently
457 Plans
- Non-qualified, deferred compensation plan
- Plan allows for pre-tax (deductible) contributions
- Max amount is determined by the IRS
- Employees age 50 or older may contribute an additional amount annualy
- 10% early withdrawal penalty does not apply
- Subject to ordinary income
- Only eligible for higher compensation employees
Profit Sharing Plans
- Funded by employers and contributions are based on company profits
- If company is not doing well, they may skip contributions that year
- Beneficial for companies with unpredictable cash flow
- Contributions are based on a predetermined formula established by the board of directors
- Max contribution is determined by the IRS
Employee Stock Ownership Plans (ESOP)
- Employee benefited plans
- Company contributes it’s stock to current employees
- Stock is sold back to the company at retirement and compensation is received equivalent to the stock value
Deferred Compensation Plans
- Contract between employer and employee
- Employer agrees to pay a certain amount of compensation to employee at a later date
- Funded: secured by employers assets
- Unfunded: backed by the employers promise
CIP Record Retention
A B/D must maintain records of the methods it used to verify a customer’s identity for 5 years following the closing of the account
Account Record
- A copy must be given to customer either within 30 days or at the time the client’s next statement is sent
- Periodic updates of account information must be sent to the customer at least every 36 months thereafter
SEC Regulation SP
- Establish privacy policies with regard to information they collect regarding customers
- Notify customers of those privacy policies
- Give customers the right to opt out of any disclosures of their non-public personal information to certain third parties, such as unaffiliated third parties (must be reasonable)
Privacy Notice
- Provided to the client at the time the relationship is established and annually thereafter
Form 3
- Within 10 days of becoming an insider, a person is required to report to the SEC
Form 4
- By the second business day, an insider is required to report any changes in his stock position
Short Swing Profits
- A short-swing profit is the result of of an insider selling her stock at a profit within 6 months of its acquisition
- May not repurchase at a lower price after sale within 6 months
Employee Outside Accounts
- Must obtain the prior written consent of their firm
- Must provide a written notification to the executing firm of their association with another member firm
- *Does not apply to redeemable investment company securities (mutual fund shares, unit investment trusts, variable contracts or 529 plans)
Previously Opened Employee Outside Account
- Must obtain written consent of his employer within 30 days of the beginning of his employment in order to maintain the account
- Must also provide written notification to the executing firm of his employment with another broker-dealer
Series 24 - General Securities Principal
- Responsible for approving new accounts
- Responsible for monitoring and enforcing the firm’s written supervisory procedures (WSP)
Series 53 - Municipal Securities Principal
- Monitor and approve the purchase of municipal securities in the account
Series 4 - Registered Options Principal
-Monitor and approve the purchase of option securities in the account
