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Series 24 Group Share > FC Chapter 8 > Flashcards

FC Chapter 8 Flashcards

1
Q

Within _____ business days of being sent to an OSJ, a principal must approve or reject a variable contract application.

A

Within seven business days of being sent to an OSJ, a principal must approve or reject a variable contract application.

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2
Q

Define breakpoint.

A

Dollar levels of investment purchases that qualify for a reduced sales charge

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3
Q

True or False: Member firms may hold sales contests for proprietary (in house) funds.

A

False

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4
Q

Mutual fund breakpoints provide clients with the ability to invest _____ money at a ______ sales charge.

A

Mutual fund breakpoints provide clients with the ability to invest more money at a lower sales charge.

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5
Q

When and to whom are completed variable contract applications forwarded?

A

Promptly to an OSJ

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6
Q

Firms must pay FINRA an annual assessment based on gross revenue generated from transactions within ____ days of notice.

A

Firms must pay FINRA an annual assessment based on gross revenue generated from transactions within 15 days of notice.

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7
Q

True or False: A hedge fund is always required to register as an investment company.

A

False. A hedge fund is not required to register if it has no more than 100 shareholders and makes no public offering.

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8
Q

What happens if a variable contract is sold to a client who then cancels the contract within seven business days?

A

The selling BD must return its portion of the sales charge.

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9
Q

True or False: FINRA must approve or reject a completed application for the purchase of a variable contract.

A

False. A principal of the member firm offering the contract must sign the application indicating approval or rejection.

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10
Q

May fund sponsors hold educational seminars and pay hotel and meal expenses for BD salespeople and their guests?

A

No. Fund sponsors may pay hotel and meal expenses for BD salespeople, but NOT for their guests.

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11
Q

Is it prohibited to receive an occasional meal or tickets to an event as compensation for selling variable contracts?

A

No, provided the compensation is not tied to achieving a sales target.

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12
Q

If a firm induces purchases by selling dividends, how does it result in a disadvantage for investors?

A

The dividend is already included in the price that investors must pay for the shares.

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13
Q

Which annuity is funded with after-tax dollars - Qualified or Non-Qualified?

A

Non-Qualified

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14
Q

Which annuity allows for a pre-tax contribution - Qualified or Non-Qualified?

A

Qualified

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15
Q

With what should a firm be concerned if an RR recommends certain funds because they are hot?

A

The RR may be implying that past performance is indicative of future results.

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16
Q

If mutual fund shares are redeemed within seven business days of purchase, _____% of sales charges are forfeited.

A

If mutual fund shares are redeemed within seven business days of purchase, 100% of sales charges are forfeited.

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17
Q

True or False: To lower sales charges, investors add mutual fund purchases in all accounts using Rights of Accumulation.

A

True. However, the purchases must all be from the same fund family.

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18
Q

If a member firm fails to pay its annual assessment to FINRA, what is the potential penalty?

A

Its membership may be cancelled or suspended.

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19
Q

What must be disclosed when an RR recommends switching from one fund family to another?

A

The switch is a taxable event and a new sales charge may apply.

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20
Q

True or False: A BD may NOT make a market in mutual fund shares.

A

True. Member firms may only buy fund shares to fill a existing customer order or for its own investment account.

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21
Q

FINRA requires member firms to pay an annual assessment based on gross revenue from what types of transactions?

A

Exchange, over-the-counter, and municipal transactions

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22
Q

Is a letter of intent binding on the investor?

A

No. However, the letter is binding on the investment company.

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23
Q

What opportunity do shareholders have when a dividend or capital gains distribution is made from a mutual fund?

A

Shareholders may reinvest the money (after-tax) and buy additional shares.

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24
Q

The annuity with growth dependent on the performance of securities in a separate account is called a __________ annuity.

A

The annuity with growth dependent on the performance of securities in a separate account is called a variable annuity.

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25
Q

Letters of Intent are valid for ____ months.

A

Letters of Intent are valid for 13 months.

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26
Q

True or False: Class A shares offer a breakpoint for large purchases.

A

True

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27
Q

What must exist before a FINRA member may sell variable contracts through another firm?

A

A sales agreement

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28
Q

Letters of Intent may be back-dated for _____ days.

A

Letters of Intent may be back-dated for 90 days.

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29
Q

Provided a FINRA member has a selling agreement with a fund, when may the member buy shares at a discount?

A

If the purchase is for its own account or to fill an existing client order

30
Q

What is the annual fee levied against a fund’s assets and used to pay expenses of commissions and retail communications?

A

12b-1 fee

31
Q

True or False: Member firms/RRs may accept securities in lieu of cash on the sale of a variable contract.

A

False

32
Q

According to the Anti-Reciprocal Rule, what practice is prohibited when selling mutual fund shares?

A

Paying more compensation for selling a fund or creating a preferred list of funds to sell based on commissions received

33
Q

What is the tax treatment of a partial withdrawal from a nonqualified annuity?

A

Only the earnings portion is taxable at the individual’s ordinary rate.

34
Q

When does a mutual fund calculate its net asset value (NAV)?

A

As stated in the prospectus, but at least daily

35
Q

What Act regulates the activities of fiduciaries?

A

The Prudent Investor Act

36
Q

True or False: When a mutual fund makes a distribution to shareholders, a written statement must be provided.

A

True. The statement will be provided to indicate the source of the distribution.

37
Q

True or False: The principal underwriter of a variable contract may sell through another BD.

A

True, provided the other firm is a FINRA member.

38
Q

When recommending a variable contract, a firm must consider the client’s suitability for what different factors?

A

The initial purchase, the subaccounts to which funds are allocated, the exchange of one contract for another

39
Q

Hedge funds register as investment companies when they have more than ____ shareholders and offer shares to ___________.

A

Hedge funds register as investment companies when they have more than 100 shareholders and offer shares to the public.

40
Q

Define selling dividends.

A

The prohibited practice of inducing purchases due to an impending dividend payment

41
Q

Typically, investment companies are allowed no more than ____ days from request to complete a redemption.

A

Typically, investment companies are allowed no more than 7 days from request to complete a redemption.

42
Q

True or False: Recommending short-term trading of mutual fund shares is advantageous to selling BDs.

A

False. BDs who recommend short-term trading would risk forfeiting sales charges due to the early redemption.

43
Q

To qualify as a regulated investment company, a fund must distribute at least ____% of its net investment income.

A

To qualify as a regulated investment company, a fund must distribute at least 90% of its net investment income.

44
Q

To institute a 12b-1 plan, whose approval must be obtained?

A

Shareholders, the board of directors, and a majority of disinterested directors

45
Q

Investment companies must send financial statements to customers every ____ months.

A

Investment companies must send financial statements to customers every 6 months.

46
Q

If a fund qualifies as a regulated investment company, who bears the tax burden on net investment income?

A

Shareholders

47
Q

True or False: Mutual fund shares may be purchased and sold in the secondary market.

A

False. Mutual funds are always considered new issues and are bought and sold through the fund.

48
Q

True or False: Engaging in breakpoint sales is allowed when dealing with larger investors.

A

False. Selling shares at amounts just below where a breakpoint is available is prohibited with all types of clients.

49
Q

What happens if an investor redeems her mutual fund shares within seven business days of purchase?

A

Both the BD and the underwriter forfeit their portion of the sales charge to the issuer.

50
Q

A BD is running a sales contest that offers prizes to staff based on mutual fund sales. When is this practice allowed?

A

When the compensation (prize) is not based on the sale of a particular fund

51
Q

True or False: If client suitability for a variable annuity is determined, an RR signs and documents the recommendation.

A

True

52
Q

True or False: Regulated Investment Companies (under Subchapter M) may relieve their burden of paying tax on income.

A

True. Regulated Investment Companies will only be taxed on the income retained.

53
Q

In a qualified annuity, how is the payout taxed?

A

The entire payout is taxed as ordinary income, since the annuity was funded with pre-tax dollars.

54
Q

True or False: Sales charges are forfeited if mutual fund shares are redeemed within 10 business days of purchase.

A

False. Sales charges are forfeited if redemption occurs within seven business days of purchase.

55
Q

True or False: SEC approval is required for a mutual fund to institute a 12b-1 plan.

A

False. Approval of shareholders, the board of directors, and a majority of disinterested directors is required.

56
Q

After the initial offering, where are shares of a closed-end management company purchased?

A

In the secondary market (like shares of stock)

57
Q

When may a variable contract be sold to another firm at a discount?

A

When the purchasing firm is also a member of FINRA

58
Q

What inquiry is made of a client who is exchanging one variable annuity for another?

A

Whether other exchanges occurred in the previous 36 months (record of the firm inquiry and client response is retained)

59
Q

What written documentation is required when recommending a 1035 exchange of a variable annuity?

A

Whether the client has completed a 1035 exchange in the past 36 months

60
Q

Mutual funds are required to provide a ___________ report to their shareholders.

A

Mutual funds are required to provide a semiannual report to their shareholders.

61
Q

What is required for a mutual fund distributor to be allowed to reimburse another firm’s RR for attending a seminar?

A

The RR must have his firm’s permission. Attendance may not be tied to fund sales. The location must be appropriate.

62
Q

Are expenses related to an RR’s attendance at an issuer-sponsored seminar on variable contracts able to be reimbursed?

A

Yes, provided the reimbursement is not tied to achieving a sales target.

63
Q

Define breakpoint sales.

A

Illegally inducing the purchase of mutual fund shares at dollar levels below where a breakpoint is available

64
Q

A mutual fund must calculate its net asset value (NAV) at least ______.

A

A mutual fund must calculate its net asset value (NAV) at least daily.

65
Q

When recommending a variable annuity to a client, when must a principal review and approve/disapprove the trade?

A

Within 7 business days

66
Q

In a custodial account, when may the custodian grant discretion to another party?

A

Never

67
Q

According to industry rules, _____% is the maximum sales charge on mutual funds.

A

According to industry rules, 8.5% is the maximum sales charge on mutual funds.

68
Q

In a non-qualified annuity, how is the payout taxed?

A

Only the earnings portion is subject to tax as ordinary income

69
Q

When must a member firm pay its annual assessment to FINRA?

A

Within 15 days of notice

70
Q

Funds offer ______________________ to allow buyers to add all purchases made from a fund family to reduce sales charge.

A

Funds offer Rights of Accumulation to allow buyers to add all purchases made from a fund family to reduce sales charge.

71
Q

What amount of an investment company’s Board of Directors must be independent/unaffiliated?

A

A majority

Series 24 Group Share (42 decks)

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