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Series 6 > Random > Flashcards

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1
Q

How often is continuing education required

A

Firm Element- Annually

Regulatory Element- You have 120 days from the 2 year anniversary of the birth of the license. From that point on it is every 3 years

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2
Q

What complaints must be reported to FINRA?

A

Only written complaints must be reported to FINRA.
ALL written complaints must be kept in a complaint file.
Must be kept on file for 3 years, 2 years readily available.

FINRA rules require complaints to be kept for FOUR years

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3
Q

FINRA punishment includes

A

Suspension- 12months
expulsion- could be permanent
Max Penalty- Whatever FINRA sees fit

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4
Q

When is the last chance you can give out a prospectus?

A

With the confirmation of a sale

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5
Q

Does FINRA require that you provide a list of names and addresses for people that attend a seminar?

A

NO

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6
Q

What is required to be in a text box?

A

Standardized Performance Info(1yr, 5yr, 10yr returns)
Maximum Sales Charge
Annual Expense Ratio

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7
Q

What is an inverted yield curve?

A

When Short term rates are higher than long term rates

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8
Q

What is the “Discount Rate”?

A

The discount rate is the rate that the Federal Reserve lends money to banks

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9
Q

What is the “Federal Funds Rate”?

A

When a bank with EXCESS reserves loans money to another bank. This IS NOT money lent by the Federal Reserve

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10
Q

Open End Mutual Fund

A

Only sells New Issue Shares that are redeemable. They may only issue common They issue unlimited amounts and NEVER sell below NAV(net asset value). Pays out a “SALES LOAD”

Can NOT issue preferred stock or senior securities only common stock

May borrow against fund assets provided their asset to debt ratio is never less than 3 to 1 (300%)

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11
Q

Closed End Mutual Fund

A

Sells limited amounts. The shares are NOT redeemable and are bought and sold on the secondary market. One Time Primary offering.

May issue more than one class of security including debt issues and preferred stock.

Pays out a “commision”

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12
Q

The maximum Sales Charge (load) that FINRA allows on a mutual fund is 8.5% with what 3 requirements?

(Without all 3 of these requirements the max is 6.25%)

A
  1. Must offer a “Break Point”
    - Break point is a discount for buying more(can’t use capital gains to reach the break point)
  2. Must offer Rights of Accumulation
    - reduced loads with more purchased over time
  3. Right to reinvest dividends without charging an additional load
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13
Q

What are “Class A” mutual fund shares?

A

Typically impose a FRONT LOADED sales charge that is calculated as a % of the offering price(max 8.5%) They also tend to have lower 12b-1 asset based fees(usually none at all), lower annual expenses than other mutual fund share classes and they usually offer breakpoints or quantity discounts for large purchases.

The main disadvantage of Class A shares is that the sales charge is subtracted up front, so not all the investors invested capital is used to buy shares.

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14
Q

What are “Class B” mutual fund shares?

A

Typically they do not have a front loaded sales charge, so all of the investors invested capital goes to buy shares. However, they may impose a contingent deferred sales charge and a 12b-1 fee that is greater than that imposed on Class A shares. The contingent deferred sales charge or back-end load, normally declines and eventually disappears over a period of time, so the sales charge levied upon redemption is “contingent” upon how long the investor held his shares.

If the investor holds the shares long enough, Class B shares often convert automatically into Class A shares, which are then subject to lower 12b-1 asses based fees. Due to the back-end load and 12b-1 fees, Class B shares MAY NOT be referred to as “no-load” shares.

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15
Q

What are “Class C” mutual fund shares?

A

They might have a 12b-1 free and either a front or back-end sales charge, but the sales charges tend to be lower than for Class A or Class B shares. However, Class C shares may be subject to a small redemption fee, such as 1%, if shares are redeemed within a short period of time. Further, Class C shares never convert to into Class A shares, so the 12b-1 fee will not be reduced over a period of time.

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16
Q

What are the 2 types of Contractual Sales Charges?

A
  1. Spread Load

2. Front Load

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17
Q

Front load and Spread Load Sales Charges

A

Both offer a 45 day “free look period”.

On a Front Load Sales Charge If you change your mind after 45 days but before 18 months you get the full value of the account plus a refund of all sales charges deducted in excess of 15% of the total amount invested.

On a Spread Load Sales charge if you change your mind after 45 days you would receive the value of the account only. Sales charges collected would be kept by the fund.

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18
Q

Front Load Sales Charge

A

Can charge 9%

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19
Q

On an Annuity, what payout option pays out the most?

A

The “Strait” policy

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20
Q

What are the 2 types of “Joint Accounts”?

A
  1. Joint tenants with rights of survivorship(JTWROS)
    -the entire asset is owned by two or more individuals
    equally. If one dies, the interest of the asset passes to
    the other. Probabe is avoided but there still may be
    estate tax liability
  2. Tenants in common-
    - 2 or more individuals may hold interest in the asset. The interest held may be unequal and at the death of one the interest passes to the deceased estate, not to the other tenants.
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21
Q

What is the “Last Dollar Tax:?

A

An investors marginal tax rate on the last dollar of income. The unearned income in a “kiddie” account that is subject to income taxes is taxed at the last dollar tax (parent’s marginal tax rate)

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22
Q

What 3 things are required to be in a text box?

A
  1. Standardized Performance Info(1yr, 5 yr and 10yr)
  2. Maximum Sales Charge
  3. Annual Expense Ratio(how it’s calculated)
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23
Q

Order tickets

A

Must be kept on record 3 years, 2 of which they are readily available. They must contain the following:

Include the terms and conditions of the order or instructions, and any modification or cancellation

Identify the account for which the order was taken

Identify each associated person, if any, responsible for the account and any other person who entered or accepted the order on behalf of the customer, or if a customer entered the order on an electronic system, a notation of that entry

Describe whether the order was entered subject to discretionary authority

Identify the time the order was received, the time of the entry, and the price at which it was executed

Include, to the extent feasible, the time of execution or cancellation.

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24
Q

Written Customer Complaints

A

B/D’s must keep a record for each written complaint for 3 years, 2 years readily available. 4 years under FINRA rules. The record must include the following:

The complainant’s name, address and account #
The date the complaint was received
The name of any other associated person identified in the complaint
A description of the nature of the complaint
The disposition of the complaint

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25
Q

Responsible Principal Records

A

B/D’s must ensure that there is a record listing each principal responsible for establishing policies and procedures reasonable designed to ensure compliance with any applicable federal requirements or rules of an SRO of which the firm is a member, requiring principal acceptance and approval of records.

Must keep these records for 6 years, first 2 readily available.

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26
Q

Office Records

A

Blotters
Order Tickets
Customer Account Records
Customer Complaints
Records with respect to associated persons
Records evidencing compliance with SRO rules regarding communications with the public
Records of persons who can explain the information in the broker/dealer’s records
Records of each principal responsible for establishing record keeping compliance procedures

Office Records must be kept IN THE OFFICE for the most recent 2 year period.

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27
Q

Transfer Procedures

A

When receiving a TIF (transfer instruction form) you have 24 hours to verify the account and 3 biz days to transfer

28
Q

Confirmations

A

Usually sent out the next business day after the trade date.

29
Q

Interpositioning

A

Using reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.

30
Q

Reg T

A

Governs credit that may be extended by a B/D.

Reg T reguires that a client pay for the securities no later than 5 business days after the trade date.

In special circumstances extensions can be granted for payment if approved by the Designated Examining Authority(DEA), FINRA or an exchange.

If no extension is granted the broker is forced to sell out the securities in the clients account and the account must be FROZEN for 90 days and all new purchases must be made cash in advance

31
Q

Reg T Margin Account

A

buying securities on credit. Client is required under Reg T to deposit a minimum of 50% of the current value of the securities being purchased. After purchase the minimum equity(ownership) required is stipulated by the exchange or SRO, generally 25% of current market value.

(Reg U let’s you borrow up to 70% if the loan is from a bank)

32
Q

Arbitration

A

Simplified Arbitration is 50k or less if involving the Firm, Broker or investor

Over 50k up to 100k
Involving:
The Firm-1 non-public arbitrator (unless agreed to 3) involving
A Broker-1 PUBLIC arbitrator(unless agreed to 3)
An Investor- 1 PUBLIC arbitrator(unless agreed to 3)

Over 100k
Firm- 3 unless agreed to 1(non public)
Broker-3 arbitrators 1non public, 2 public
Investor- 3 arbitrators

33
Q

Mediation Ground Rules

A

Mediation is voluntary and any party may withdraw from mediation at any time prior to the execution of a written settlement agreement by giving written notice of withdrawal to the mediator, the other parties, and the director.

34
Q

Transfer Agent’s role

A

A key role of the transfer agent is the determination of who will receive the dividend and capital gains distributions of the fund. They also redeem shares of a mutual fund at the price next calculated after receiving a request for redemption. The transfer agent also handles transfers of account ownership for such transactions as an inheritance or gift.

Distributions of shares is the key role of the Underwritter

35
Q

Investment Company Act of 1940

A

Requires registration of the company with the SEC, a minimum initial net worth of 100k, a specifically defined investment objective and whether the company intends to qualify as a diversified or non diversified company. The asset to debt ratio must be at least 3 to 1

36
Q

Diversified Management Investment Company

A

Must have at least 75% of the companies assets diversified so that no more than 5% of total assests are invested in the securities of one issuer and no single holding represents more than 10% of the voting securities of an issuer.

37
Q

Index Annuities

A

Designed to give their owners participation in the performance of a specific index. The degree to which they participate is known as the participation rate and can range from 70% to 100%. In most cases, there is also a rate cap, a ceiling on the amount that will be credited. The surrender period is longer than most other annuities.

38
Q

To calculate how many shares you get upon conversion

A

Par value divided by the conversion price equals the amount of shares you get

39
Q

Treasury Bills

A

T-bills make up the bulk of trading in the MONEY MARKET.

They are US Government securities that are SOLD AT A DISCOUNT.

T-Bills have maturities of 4, 13, 26 and 52 WEEKS

40
Q

Bankers Acceptances

A

A Bankers Acceptance is essentially a letter of credit from a bank guaranteeing payment of a debt.

Generally, bankers acceptances are used in the import/export business

They trade in the secondary market AT A DISCOUNT UNTIL MATURITY

41
Q

Commercial Paper

A

Often, large corporations will borrow large sums of money for short periods of time to solve a need for short-term financing such as temporary cash flow problems.

Typically, this type of debt is NOT secured by any form of collateral but simply by the good credit standing of the company.

Commercial paper has a MAXIMUM maturity of 270 days(NINE MONTHS) and is generally issued at a discount from face value

42
Q

Negotiable Certificates of Deposit

A

Issued by most commercial banks

They represent bank borrowing for a short period of time

The minimum face amount is 100k

The typical trading unit for a negotiable CD is one million dollars.

Negotiable CD’s are often purchased by insurance companies, mutual funds and pension plans.

Although these money market instruments are securities, most are exempt from registration with the SEC

43
Q

Equity Funds

A

Mutual funds that invest primarily in equity instruments-mainly common stocks

The main objective of equity funds includes long term growth (appreciation) There are different types of equity funds to choose from, depending upon the client’s investment objective and risk tolerance

44
Q

Income Fund

A

Funds that stress current yield or income.

The funds objective may be accomplished by investing in companies with long histories of dividend payments or in investment quality bonds.

Suitable for MODERATE investors

45
Q

Aggressive Growth Fund

A

The type of equity fund would be the riskiest of those listed.

It’s portfolio would consist of newer companies, companies with low to no dividends, but companies that represent the greatest potential for appreciation.

Suitable for AGGRESSIVE investors

46
Q

Value Fund

A

This type of fund would purchase stock of companies that are believed to be undervalued.(earnings/dividends are not reflected in the stock price)

As a result, the dividend yields tend to be higher than growth funds(capital gains tend to be higher on growth funds)

The risk with a value fund is that the securities purchased for the portfolio may never reach their believed potential.

Suitable for AGGRESSIVE investors

47
Q

Blend/Core Fund

A

This fund mixes growth and value strategies.

It typically has a mix of stocks, bonds and money market instruments in it’s portfolio.

This fund would be safer than a growth fund and riskier than a bond fund.

Suitable for MODERATE investors

48
Q

Combination Annuity

A

Combines the guaranteed fixed payment of a fixed annuity with the variable payment of a variable annuity.

Attempts to provide for the objectives of an individual who requires a guaranteed payment but also may want the opportunity for payments to keep pace with inflation

49
Q

Sponsor

A

Another name for the underwriter

Compensated form the sales charges it collects from investors in the fund.

Sales charges collected by a sponsor may never be an expense to the fund

50
Q

Recession vs. Depression

A

Recession-
6 consecutive MONTHS of economic decline

Depression-
6 consecutive QUARTERS of economic decline

51
Q

Growth Stock Mutual Fund value

A

Is NAV, not supply and demand

52
Q

12b-1 fees

A

Can NOT exceed .75 %

Are deducted quarterly

Can be terminated at any time by a majority vote of the non-interested directors and a majority vote of outstanding shares.

Must be approved by a majority vote of the outstanding shares, a majority vote of the board of directors and a majority vote of the non-interested board members.

53
Q

When is the best time for an investor seeking returns to purchase long-term, fixed interest rate bonds?

A

The best time to buy long term bonds is when interest rates are high and beginning to decline.

The best time to buy long term bonds is when interest have peaked. In addition to providing a high initial return, as interest rates fall, the bonds will rise in value.

54
Q

Zero-Coupon Bonds

A

Purchased at a deep discount and redeemed at par at maturity

The discount from par represents the interest that will be earned at the maturity date.

The discount is accreted annually and the investor pays income taxes yearly on the imputed interest.(taxed annually as phantom income)

55
Q

How often do debentures and equipment bonds pay principal?

A

As it comes due.

56
Q

Ginnie Mae Pass Through Certificates

A

The investor receives principal and interest aftter the homeowner has made their monthly mortgage payment.

Paid out monthly.

57
Q

As interest rates fall, prices of straight preferred stock will:

A

Rise.

Preferred stock is interest rate sensitive. As rates fall, prices of preferred stocks tend to rise, and vice versa

58
Q

In variable life insurance contracts, what is deducted from the premium

A

The administrative fee, sales load and state premium taxes are all deducted from the premium

The mortality risk fee, investment management fee and expense risk fee are deducted from the seperate account.

59
Q

Characteristics of Holders of COMMON STOCK

A

They are entitled to dividend distributions in proportion to their ownership and to residual rights to corporate assets on dissolution.

They have preemptive rights

They do NOT vote on the payment of dividends.

They have only limited liability.

60
Q

If interest rates increase, the interest payable on outstanding corporate bonds will remain unchanged

A

The interest payable is the nominal yield, which is stated on the face of the bond.

It is the percentage of face value the bond will pay each year regardless of the prevailing interest rates in the market

It is the market price of bonds, not the interest payable that responds inversely to changes in interest rates.

61
Q

Preemptive Rights

A

Allows common stockholders to subscribe to additional issues of shares before they are offered to the public to maintain their percentage ownership.

Preferred stock does NOT have preemptive rights.

62
Q

GDP (growth domestic product)

A

The total productive output of a country in a year

Includes exports, government spending and a host of other quantities.

GDP is a direct measurement of PRODUCTIVITY.

try to remember product(in name) to productivity

63
Q

CPI (consumer price index)

A

Compares prices for representative commodities with prices for the same commodities in the past.

CPI is a direct measure of INFLATION.

try to remember price(in name) to inflation

64
Q

Mid-Cap Stocks

A

Mid-Cap stocks have historically provided good hedges against inflation making them appropriate for an investor seeking long-term growth and inflation protection.

Stocks of large companies (“large cap”, or “mid cap”stocks)are safer tahn stocks issued by smaller companies (small cap or mini-cap or micro cap stocks)

65
Q

Complete order of liquidation of a corporation

A

Any outstanding:

1st- Wages
2nd-Taxes
3rd-Secured Debt
4th-Debentures
5th-General Creditors
6th-Subordinated Debentures
7th-Preferred Stock
last-Common Stock
66
Q

Variable Life Ins Payments

A

Variable life insurance has scheduled, not flexible premium payments.

The distinguished factor from Whole Life vs. Variable Life is the Variable Death Benefit.

The Insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.

Series 6 (17 decks)

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