FC Chapter 13 PART1 Flashcards
If a customer changes his address, where and when must notification of the change be sent?
Notification must be sent to the customer’s old address within 30 days of the change.
From what requirement of the penny stock rules are established customers exempt?
The account approval requirement
True or False: If the custodian is not a donor of the assets in a custodial account, she may charge a management fee.
True
True or False: The capacity in which a firm acts appears on both the confirmation and the order ticket.
False. Firm capacity is disclosed on the confirmation, not the order ticket.
What happens to the deceased’s portion in a joint account with right of survivorship?
Her portion passes to the survivor.
True or False: Short tendering is acceptable provided the subject company stock is not on the threshold security list.
False. Short tendering of stock is prohibited. An investor must be long the subject company’s stock or its equivalent.
True or False: A 457 plan is a qualified retirement plan.
False. A 457 plan is a nonqualified retirement plan.
What is required for an account being opened for a client who wishes to engage in short selling stock?
(1) Principal’s signature and (2) client’s signature (since the activity requires a margin account)
A client granting third-party authorization to another person does NOT constitute ______ ownership.
A client granting third-party authorization to another person does NOT constitute joint ownership.
What steps are taken if a customer dies?
Mark the account “deceased,” cancel open orders, and await instructions.
How much may be contributed to a 529 plan and avoid gift tax?
A donor may give up to $14,000 per year and avoid the gift tax.
A _______ plan is available for employees of non-profits, while a _____ plan is available for municipal employees.
A 403(b) plan is available for employees of non-profits, while a 457 plan is available for municipal employees.
For a joint account, how many account numbers and SSNs are used for tax reporting?
One
How is SIPC funded?
Through assessments on BDs that are SIPC members
What is required for a client’s account to be identified by number instead of name?
The client must sign a statement attesting to the ownership of the account.
Who may enter orders in a joint account?
Any owner named on the account
True or False: Any odd-lot differential or fee is disclosed on a customer confirmation.
True
May an individual with a Keogh Plan also fund an IRA?
Yes, but since the Keogh is a qualified plan, the IRA contributions may not be tax-deductible.
What steps should be taken when an RR executes a trade but uses the wrong account number?
Do a cancel and re-bill. Transfer the trade to the correct account number with permission of a supervising principal.
True or False: Client signature is required when opening either a cash or margin account.
False. Client signature is required when opening a margin account, but not a cash account.
True or False: Money may be withdrawn from a joint account in one owner’s name.
False. Any checks should be in both parties’ names.
If a client does not have a valid driver’s license or passport, what may be used to verify identity?
Client financial statements or checking references/information with other institutions or consumer reporting agencies
Do clients need to sign a letter of authorization (LOA) to begin receiving confirmations and statements electronically?
No
If not needed for a child’s education, may the funds in a 529 Plan be transferred to a relative’s 529 Plan?
Yes
True or False: Transfer and hold is an alternative to holding client securities in street name.
True. Transfer and hold indicates the securities are registered in the client’s name, but held at the brokerage firm.
If a client grants discretion to a third party, the ___________ of the person granted discretion must be obtained.
If a client grants discretion to a third party, the signature of the person who has been granted discretion must be obtained.
For SIPC purposes, what is a money-market mutual fund considered?
The fund is considered a security, not cash.
At the death of a client with a Transfer on Death designation, assets are transferred without going through ________.
At the death of a client with a Transfer on Death designation, assets are transferred without going through probate.
Jess has purchased Omega Industries, a penny stock, on three separate occasions. Is Jess an established client?
No. Established customers are those who have purchased three different penny stocks on three separate days.
What retirement plan is available for employees of state and local government entities?
A 457 plan
John has opened an account with a BD. When is the firm required to provide John with a privacy notice?
Since John is a customer, it must be provided at the time the account is opened.
Under the UGMA, when may a gift given to a minor be revoked?
Under no circumstances, since gifts to minors are irrevocable
List some retirement accounts that have required minimum disributions.
Required minimum distributions apply to traditional IRAs, 401(k), 457, and 403(b) plans.
If a firm makes an error in executing a client order, a __________ must be consulted to correct the error.
If a firm makes an error in executing a client order, a principal must be consulted to correct the error.
What is some of the important information to obtain when opening a new client’s account?
Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience
When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?
When not covered by an employer-sponsored plan or when covered by a plan and below an adjusted gross income limit.
When is a privacy notice presented to a customer?
No later than when the relationship is established
The ___________________ must sign the account form.
The supervising principal must sign the account form (clients are not required to sign).
What triggers a BD’s filing of a Currency Transaction Report (CTR)?
Any cash transaction executed by a customer during one day that exceeds $10,000
True or False: Custodial accounts are solely carried in the name of the minor.
False. The account is in the custodian’s name for the benefit of the minor.
True or False: A FINRA notice of disqualification must disclose that the member firm may request relief from the action.
True. The firm may file a written application requesting relief for itself or its employee
True or False: When documenting third-party authorization, a BD must record the date on which authorization is granted.
true
What is filed if a client opens an account with $12,000 and offers $1,000 in cash to keep the teller from filing a CTR?
The $1,000 incentive payment, which amounts to a bribe, triggers an SAR.
According to the Uniform Gifts to Minors Act, gifts to minors are ____________.
According to the Uniform Gifts to Minors Act, gifts to minors are irrevocable.
What program must be established by BDs to verify the identity of each customer opening an account?
Customer Identification Program (CIP)
True or False: In a 401(k) plan, employers must make matching contributions on behalf of employees.
False. Employers may, but are not required to, make matching contributions.
True or False: A self-employed individual with a Keogh plan is not required to make contributions for others.
False. Full-time employees who are 21 or older must receive contributions at the same percentage as the employer.
What document allows a BD to lend customer securities to someone wishing to sell them short?
Loan Consent Agreement
True or False: Penny stock trades with institutional accredited investors are subject to the disclosure rules.
False. These trades are excluded from the disclosure rules.
True or False: A not held order may be executed at any point during the course of a week.
False. Not held order may only be executed on the day the order was entered.
If a client refuses to disclose her age when opening an account, what should the BD explain to her?
The firm should explain that without proof of age, an account may not be opened.
True or False: Only one person must provide information to open a joint account.
False. Each owner must provide information to open a joint account.
What is required for an investment adviser to place a transaction for its client?
The client would be required to sign a third-party trading authorization.
Grandparents contributing to a grandchild’s 529 plan may give how much money and still avoid gift tax consequences?
Front-loading five years of contributions is allowed; therefore, each could contribute $70,000 for a total of $140,000.
The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
Define penny stock.
A non-exchange-traded (Pink Sheets or OTCBB) equity with a bid price below $5.00
If the sponsor of a deferred compensation plan fails, what are plan participants considered?
General creditors (the plan is not covered under ERISA guidelines)
True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.
False. The list shows the names of suspected terrorists and criminals.
As it relates to account management, what is the role of a guardian?
To handle the affairs of a person who is legally disabled based on age, or physical or mental incapacity
When must IRA withdrawals begin in order to avoid the late withdrawal penalty?
By April 1st of the year after an individual turns age 70 1/2
Where must SIPC membership be displayed?
In each branch and home office of the BD. Also, any retail communication must contain the SIPC logo.
IRA rollovers must be completed within ____ days.
IRA rollovers must be completed within 60 days.
What two forms are required for Sue’s son to make her investment decisions and pay her bills while she’s on vacation?
1) Full power of attorney, and 2) a signed request from the client
True or False: All contributions made to IRAs are tax-deductible.
False. Only contributions to Traditional IRAs are tax-deductible; Roth IRA contributions are NEVER deductible.
True or False: Predispute Arbitration Agreements may limit awards.
False
True or False: Small currency transactions effected during a single business day are aggregated for reporting purposes.
True
Under Penny Stock Rules, when does a customer become established?
When they have purchased 3 different penny stocks on 3 different occasions, or they have been a customer for one year
After receiving client authorization, whose written approval is required to exercise discretion in the client’s account?
A partner, officer, or other appropriately registered official of the member firm
A record of all customers’ securities positions, along with profits and losses, must be maintained for _____ years.
A record of all customers’ securities positions, along with profits and losses, must be maintained for six years.
True or False: An individual who has been granted discretionary authorization is considered a co-owner of the account.
False. All account assets remain the sole property of the account owner.
What is the OFAC List?
The Office of Foreign Assets Control of the U.S. Treasury List; it identifies suspected terrorists and criminals
Give some examples of what SIPC does NOT cover.
Fraud, futures contracts, and commodities
When a child reaches legal age, what action is taken in the custodial account?
The custodian must transfer the assets to the owner.
What is included in a retirement plan’s investment policy statement?
The client’s general investment objectives and the strategies that the manager should employ to meet these objectives
Jim’s cash account contains $275,000 of cash and $185,000 of securities. How much SIPC coverage is provided?
SIPC coverage is provided for $250,000 of cash and the full $185,000 of securities.
How is a Roth IRA contribution different from a Traditional IRA contribution?
The Roth IRA contribution is always made on an after-tax basis.
Hank leaves his employer for a new job. How can he roll over his pension plan to an IRA and avoid a 20% withholding?
By having the plan trustee transfer the funds directly to an IRA
True or False: A firm may hold client shares in its vault, at the DTCC, or with a prime broker.
True
If FINRA issues a disqualification notice, when may the firm file a request for relief for itself or its employee?
Within 10 business days after service of the notice
True or False: SIPC provides coverage for both commodities and futures accounts.
False
When is a firm obligated to disclose its markup?
When acting in a principal capacity for trades involving listed securities or riskless principal trades
If an employer makes the maximum deposit in her Keogh plan, she must deposit what amount for full-time employees?
The same percentage contribution of the employee’s salary as made by the employer to her account
Customer account information must be updated every ____ months.
Customer account information must be updated every 36 months.
_____ power of attorney is required for a named person to trade for the account owner’s benefit and/or remove funds.
Full power of attorney is required for a named person to trade for the account owner’s benefit and/or remove funds.
What is the penny stock commission limit for a BD to be excluded from the penny stock disclosure rules?
The BD’s penny stock commissions may not exceed 5% of its total commissions.
If a pricing error occurs when reporting a trade, the client is obligated to accept the ________ price.
If a pricing error occurs when reporting a trade, the client is obligated to accept the actual price.
A client’s buy order was executed at $30, but was reported to the client at $29.90. What price must the client pay?
The client must pay the actual execution price and the BD will send the customer a correcting confirmation.
To have the authorization to buy or sell securities in a client’s account, an RR must have ________ power of attorney.
To have the authorization to buy or sell securities in a client’s account, an RR must have limited power of attorney.
What will SIPC cover in a customer’s margin account?
Only the customer’s equity (securities clear of any outstanding loan)
What information is found on a confirmation and NOT an order ticket?
Firm capacity, accrued interest, commission, and CUSIP number
A client’s name and number must be kept on the Do Not Call List ____________.
A client’s name and number must be kept on the Do Not Call List indefinitely.
Jenny is 53 and has annual income of $65,000. What is she permitted to contribute to her IRA annually?
$7,000 (the standard $6,000 plus the $1,000 catch-up)
For a Series 7 representative to offer wrap accounts, what other registration must she hold?
Series 65 or 66
_____________ is when a BD takes the stock of two or more clients and uses it to secure a loan.
Commingling is when a BD takes the stock of two or more clients and uses it to secure a loan.
True or False: A client must approve each discretionary trade in writing before it is executed.
False. Once the client’s written authorization is obtained, discretion may be exercised without trade-by-trade consent.
What establishes the guidelines for how a retirement plan’s assets are invested?
The investment policy statement
True or False: Penny stock trades that are NOT recommended by the BD are exempt from the disclosure rules.
true
True or False: The signature of a person now deceased would be valid for the account of an estate.
False
When processing a rollover of a qualified plan, the old plan must withhold ____% of the distribution for tax purposes.
When processing a rollover of a qualified plan, the old plan must withhold 20% of the distribution for tax purposes.
True or False: When a client grants third-party authorization to another person, the account becomes a joint account.
False
What equities are excluded from the definition of a penny stock?
Exchange-traded stocks, investment company securities, OCC-listed puts and calls, and stocks priced at $5.00 or more
What are joint accounts considered by SIPC?
Joint accounts are considered separate from individual accounts.
For a power of attorney to be effective, it must be signed by the ________ and accepted by _____________ of the firm.
For a power of attorney to be effective, it must be signed by the client and accepted by a principal of the firm.
If the owner of a discretionary account becomes incapacitated, what happens to the power of attorney?
The power of attorney is void and the appointment of a guardian/conservator would be required.
When a customer buys on margin, how much cash may a BD borrow from a bank?
100% of the debit balance
For every rolling 12 months, how many times may a qualified plan be transferred via a rollover?
Once
Because margin is not allowed in a custodial account, what activities/investments are prohibited?
Short selling, uncovered option positions, and commodity futures contracts
For purposes of verifying client identity, may firms accept personal references provided by the client?
No, verification from an independent source is required.
How often are BDs required to send statements to clients regarding penny stocks in their accounts?
Monthly
May an associated person of a BD maintain a business relationship with a person who was banned from the industry?
No. Such a relationship is not acceptable and is considered grounds for statutory disqualification.
To not be required to justify a recommendation, what must an institutional client be able to make?
An independent evaluation of the recommendation
Describe the tax treatment of contributions made to a 529 Plan.
They are after-tax contributions that may possibly grow tax-free.
While away on vacation, Jerry wants his son to be able to pay bills and make investment decisions. What is required?
(1) A signed request from the client, and (2) full power of attorney (full POA is required due to the check writing privilege)
Who is considered the legal owner of all the cash and securities in a custodial account?
The minor
What regulation protects the non-public personal information of customers?
Regulation S-P
What is the maximum contribution a self-employed doctor earning $300,000 may make to a Keogh plan?
The lesser of 25% of self-employment income or $56,000. In this example, $56,000 may be contributed.
List some items that are found on a customer confirmation.
Trade date, time of trade (or available on request), buy/sell, description, price, number of shares/units, CUSIP number
In an IRA, an early withdrawal without penalty is allowed for what reasons?
Death, disability, qualified higher education expenses, or first-time home buyer ($10,000 limit)
In a 401(k) plan, there is immediate vesting of _________ contributions.
In a 401(k) plan, there is immediate vesting of employee contributions.
According to Regulation SP, what information must be included in a BD’s privacy notice?
Type of personal information collected, third parties with whom the information is shared, and an opt-out provision
In the process of opening a new account, when must an RR obtain customer information?
Prior to entering the first order
True or False: Customers are required to sign the Loan Consent Agreement.
False. Signing the agreement is optional.
Under penny stock rules, from what requirement are established customers NOT excluded?
The penny stock disclosure rules
Explain a BD’s obligations regarding its Customer Identification Procedures (CIP).
Under CIP, firms are required to obtain and verify certain customer information when opening accounts.
Under Penny Stock Rules, from what requirements are established customers excluded?
Account approval for such stocks and the provision for obtaining client consent for the trade showing stock and quantity
List some plans that are not covered by ERISA guidelines (nonqualified plans).
IRAs, deferred compensation plans, and U.S. Savings Bond purchase plans
What are some of the special standards that firms follow in regard to soliciting sales of penny stocks?
Determine suitability, principal approval, send risk disclosure, client’s written authorization for the first 3 trades
What is required for a not-held order to be valid for more than one trading day?
A client’s written authorization
Does this order require prior discretionary authorization? “Buy 300 shares of DMB this week”
Yes, since it is NOT a not held order. Not held orders are only good for a trading day, and this order is for the week.
What is required by the Bank Secrecy Act (BSA)?
The BSA requires firms to file reports and maintain records regarding cash transactions.
True or False: All customer account-related information must be delivered physically.
False. On request, BDs are permitted to deliver both confirmations and statements electronically.
A brokerage client who has a discretionary account has just died. What document would no longer be valid?
A power of attorney
True or False: Both limited and full power of attorney allow a person check-writing privileges in a client’s account.
False. To authorize check-writing privileges, full power of attorney is required.
Is the contra-broker ID typically found on a customer confirmation?
No
What is the difference in reporting a riskless principal trade and a net basis trade?
Riskless principal trades may be reported as one trade, while net basis trades require two separate reports.
An investor, who has granted power of attorney to her son, dies. What happens to the power of attorney?
It is cancelled upon the death of the principal in the account.
How are withdrawals from Roth IRAs treated for tax purposes?
Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.
True or False: Jim’s joint account with his wife is considered a separate customer by SIPC.
True. E.g. Jim’s cash and margin account are combined for coverage, but Jim’s joint account with his spouse is separate.
True or False: If a client accidentally makes an online purchase of the wrong security, the BD will cancel the trade.
False. If the error was caused by the client, the BD is not responsible.
Omitting a _________ fact in an application or report to an SRO is grounds for statutory disqualification.
Omitting a material fact in an application or report to an SRO is grounds for statutory disqualification.
If a firm acts in an agency capacity, the ___________ must be disclosed on a confirmation.
If a firm acts in an agency capacity, the commission must be disclosed on a confirmation.
Define promptly as it relates to a principal’s approval of discretionary orders.
Promptly means on the day of the trade, but not in advance.
True or False: Confirmations must disclose the profit earned and whether the firm publishes research reports on a stock.
False
Meg’s husband is suffering from Alzheimer’s. What document must she present to take over his affairs as conservator?
A court-certified copy of the certificate of appointment of the conservator to act for her incapacitated husband
Any ______ may be named as the custodian for a custodial account.
Any adult may be named as the custodian for a custodial account.
According to the TCPA, what information must telephone solicitors provide to clients?
Their name, firm name, a telephone number, or address where they can be contacted, and the purpose of the call
Only one IRA rollover is allowed per rolling ____ months.
Only one IRA rollover is allowed per rolling 12 months.
Under Regulation SP, what method of opting out of information sharing is considered too burdensome for a client?
Requiring the client to write a letter, however, a customer may opt out by calling the firm
True or False: A client must provide signed acknowledgement of receipt of the penny stock risk disclosure document.
True
A client executes seven day trades over a two-business-day period. Is this client a pattern day trader?
Yes. A pattern day trader executes four or more day trades over a five-day period.
The maximum contribution to an IRA is ____% of earned income up to $_______.
The maximum contribution to an IRA is 100% of earned income up to $6,000.
A client’s order to buy XYZ at $50 is actually filled at $50 plus a $.25 markup ($50.25 total). What may the client do?
Refuse the trade since his instructions were not followed
What retirement plans are available to the self-employed?
Keogh Plans and SEPs
True or False: Required minimum distributions apply to SEP IRAs.
True. Required minimum distributions apply to IRA SEP plans.
True or False: Transmitting unsolicited advertisements to fax machines are permitted.
False. Unsolicited transmissions to fax machines are prohibited.
Jim owns 1,000 DEF shares, sells 5 DEF calls, and buys 2 DEF puts. For tendering, how many shares is he net long?
He is net long 500 shares (The 1,000 share position is offset by the sale of 5 calls). The long puts have no effect.
Client information is sent to the client within ____ days of the account opening and updated at least every ____ months.
Client information is sent to the client within 30 days of the account opening and updated at least every 36 months.
If a BD goes bankrupt, what happens to securities registered in the customer’s name?
They are returned to the customer without regard to SIPC limitations.
If a client wishes to opt out and prevent a firm from sharing personal information, what opt-out methods are acceptable?
Calling a toll-free number and returning a postcard are reasonable methods.
Customers become ___________________ if their cash or securities positions exceed SIPC coverage.
Customers become general creditors if their cash or securities positions exceed SIPC coverage.
