Financial Services Regulations and Requirements

Question 1

Registration and Licensing

Answer 1

primary goal of licensing is to assure that practicing individuals understand the laws and regulations under which they must operate

Question 2

Primary FINRA Licenses

Answer 2

Series 4 - Registered Options Principal
Series 6 - Investment Company products/variable contracts
Series 7 - General securities representative
Series 22 - Direct Participation Programs
Series 24 - General Securities Principal
Series 27 - Financial and Operations Principal
Series 62 - Corporate Securities
Series 63 - Uniform Securities Agent State Law Exam
Series 65 - Uniform Investment Advisor Law Exam
Series 66 - Combined State Law and Investment Advisor Exam

Question 3

Two Primary Insurance Licenses

Answer 3

Agent - limits their activities to selling products of one company. Generally have the ability to bind property and liability coverage
Broker - permits sales reps to sell products from an number of companies, primarily the representative of the insurance buyer. Without an agent contract, cannot bind property and liability coverage.

Question 4

Insurance Producer

Answer 4

some states have begun to issue a single license. The rights and authority of the sales person are determined by the contract he or she has with the various insurance companies.

Question 5

Advisors

Answer 5

• register as an RIA with the SEC or state commission in his or her own name or company
• register as an IAR if the broker-dealer for whom the representative works is registered as an RIA

Question 6

Registration of an RIA

Answer 6

• if they have up to 25 MM in AUM, must file with the state where the RIA maintains
• if they have between 25 MM and 30 MM in AUM, the RIA may file with the state or the SEC
• if they have more than 30 MM in AUM, must register with the SEC

Question 7

Requirement to be registered as an RIA

Answer 7

• provides advice or issues reports or analysis with respect to securities
• in the business of providing such services
• provides such services for compensation

Question 8

Insurance reasons for Regulation

Answer 8

• vested public interest
• maintain competition (anti-trust)
• prevent abuse of consumers
• correct market failures

Question 9

Economic theories for regulating insurance

Answer 9

• market failure

- public choice

Question 10

Government Branches that regulate insurance

Answer 10

Legislative branch enacts laws governing insurance companies and agents. Sets requirements for organizing an insurance company

Question 11

Insurance Judicial Branch

Answer 11

• courts render decisions on meanings of policy terms

- courts rule on constitutionality of state insurance law

Question 12

Insurance Executive/Administrative Branch - State Commissioner

Answer 12

• Runs insurance business in the state
• licenses companies and agents
• examines companies
• is a member of NAIC

Question 13

Contracts

Answer 13

legally enforceable agreements where one party to the agreement agrees to provide something to the other party that is perceived to have equal or greater value

Question 14

What must enforceable contracts have?

Answer 14

1) a legal purpose
2) consideration (legal payment)
3) legally competent parties
4) an offer of acceptance
5) legal form (pertaining to insurance contracts)

Question 15

Tort

Answer 15

-a civil wrongdoing which can be either intentional or unintentional

Question 16

Law of Torts

Answer 16

-defines when a person can seek compensation forom another for physical, emotional, or fiscal damage caused by that person.

Question 17

Agency

Answer 17

• a legal relationship between two persons who agree that one is to act on behalf of the other, subject to the latter’s control.
• responsible to his or her principal,not to the client
• generally controls the actions of insurance agents, securities sales representatives, and real estate agents.

Question 18

Fiduciary Liability

Answer 18

• must act for the benefit of the beneficiary of the fiduciary relationship
• held to the highest level of responsibility under the law and, the CFP boards code of ethics is built upon this principle.

Question 19

Fair Credit Reporting Act

Answer 19

• guarantees certain consumer rights in reporting credit information
• gives the consumer the right to see their file
• only those with a legitimate need mat see the credit history file without a court order
• government cannot see the file unless it is considering employing the individual, granting a license of some kind, considering them for security clearance, or if back taxes are owed

Question 20

Truth in Lending/Consumer Credit Protection Act

Answer 20

• lender must inform the borrow of the annual interest rate being paid on the loan
• cost of any credit life insurance must be disclosed
• right of rescission clause must be included in the contract giving the borrow three business days to nullify the contact. Payment penalties mus be disclosed
• protects the borrower in the event the credit card is lost or stolen to a maximum loss of $50 per card or until the card has been reported missing if less