Unit 3 Supervision of Retail and Inst Customer-Related Activities

Question 1

During an examination of BDA, FINRA examiners noted during the exit interview that the firm failed to adequately address communications and correspondence in the firms written supervisory procedures. Which of the following statements would likely be mentioned by FINRA examiners?

Answer 1

1. Communications and correspondence may include a fictional name by which the member is commonly recognized.
2. A BD must disclose any relationship between the member and any person who is named in the communication.
3. A BD must disclose the specific products or services being offered by the member if it includes other company names in the communication.

Question 2

Retail communications relating to which of the following must be filed with FINRA by an established member firm?

Answer 2

1. Investment companies
2. Direct participation programs

Question 3

Which of the following is classified as retail communication?

Answer 3

Newspaper advertisement

Question 4

A testimonial used by a member firm in connection with retail communications must state…

Answer 4

1. the qualifications of the person giving the testimonial if a specialized or experienced opinion is implied
2. that past performance is not indicative of future performance and that other investors may not obtain comparable results
3. the fact that compensation was paid to the person giving the testimonial if more that $100 in value was paid

Question 5

Under FINRA rules, a member may pay continuing commissions to a retired representative when…

Answer 5

1. only if a written agreement is in effect
2. based on business of continuing customers after retirement

Question 6

A member firm must prefile retail communications if…

Answer 6

1. the member has not yet celebrated its first anniversary of the date its FINRA membership became effective
2. the communication relates to options
3. under an order from FINRA to prefile

Question 7

Which of the following statements regarding anti-money laundering detection within a registered BD is true?

Answer 7

If the approving senior manager leaves the member firm, the AML policies and procedures of the firm should be reapproved by the newly appointed manger.

Question 8

Under FINRA rules, a member may charge a customer for all of the following…

Answer 8

1. safekeeping of securities
2. collection of interest and dividends
3. appraisal of securities

Question 9

In dealing with nonmember and suspended member firms, which of the following statement is true?

Answer 9

A member may join a nonmember bank in the underwriting of municipal bonds and slit concessions with the bank as through it were a member.

Question 10

A member firm may pay commissions to a nonmember for executing…

Answer 10

1. an exempt securities transaction in the OTC market
2. a nonexempt securities transaction of an exchange floor

Question 11

Those member firms that promote day-trading strategies must implement procedures to approve day-trading accounts. Day-trading risk disclosure statements must be provided to…

Answer 11

each separate customer

Question 12

Correspondence distributed to institutional investors may be sent to each of the following…

Answer 12

1. an employee benefit plan with 100 or more participants
2. a person acting solely on behalf of an institutional investor
3. any entity with 50mm or more in total assets

Question 13

Each of the following communications is exempt from any filing requirement to FINRAs Advertising Regulation Department…

Answer 13

1. a change in the member’s name of business structure
2. internal memos and changes to the MPID only
3. information prepared by a mutual fund underwriter and used without change

Question 14

Member firms that promote day-trading strategies must…

Answer 14

implement procedures to approve day-trading accounts

Question 15

Which of the following materials is subject to FINRAs filing requirements?

Answer 15

Retail communications describing the performance ranking of an open-end management investment company

Question 16

All research reports must disclose

Answer 16

1. any control relationship with the issuer
2. the price at the time the original recommendation was made
3. the fact that the member firm has a 1% or more position in the security
4. the name of the member firm providing the recommendation

Question 17

To which of the following persons may a BD pay commissions under a continuing commission contract?

Answer 17

1. Retired employee, for the past business
2. Widow of a former employee, for past business

Question 18

Which of the following statements regarding recruiting advertising by FINRA member firms are true?

Answer 18

1. It may not contain exaggerated claims about opportunities in the securities business
2. So called “blind” ads do not have to mention the member’s name

Question 19

Which of the following must be included in a testimonial made on behalf of a member firm and distributed to potential clients?

Answer 19

1. Qualifications of the person giving the testimonial if a specialized or an expert opinion is implied
2. Fact that the returns and investment performance cited in the testimonials may not be easily duplicated
3. Whether compensation in excess of $100 was paid to the person giving the testimonial

Question 20

Written recommendations prepared by a registered representative need to the prior approval of

Answer 20

a principal of the firm

Question 21

An associated person of a member firm has made a public appearance to explain market strategies that are widely available to senior citizens. Supervision of this activin would need to include each of the following…

Answer 21

1. the member firm is required to establish written procedures to supervise an associated person’s public appearances
2. training must be provided to associated person who make public appearances
3. surveillance is necessary to be certain policies and procedure pertaining to senior investors are being adhered to

Question 22

A FINRA member firm has identified that a walk-in customer looking to open a cash account appears on the Office of Foreign Asset Controls OFAC list. Who must oversee your firms dealing with this individual?

Answer 22

The firm’s AML officer

Question 23

A new customer has just opened a margin account at your firm. She has given her layer limited power of attorney over the account to pursue a trading strategy suitable for senior investors while she makes an extended pleasure trip to Europe. Which of the following statements regarding this customer’s communications are true?

Answer 23

The firm may hold mail for the customer while she traveling internationally for specific periods

Question 24

Mr. Andrews walks into one of your firm’s small branches wishing to to open up a cash account. He has been referred to your firm by one of its biggest clients. He provides sufficient information to open the account but has no identification with him. The firm procedures may…

Answer 24

permit the account to be opened, accept a deposit, and follow all the firm’s written procedures for this situation

Question 25

A branch office is in the process of opening a new account with a customer, a handicraft importer, who indicates that he does a lot of business abroad. He further indicates that he will be sending and receiving approximately 10 money wires per month. The new account form comes to your for approval. As a compliance officer, you will likely…

Answer 25

approve the account with instructions to carefully scrutinize each transaction

Question 26

Under FINRA rules, each of the following must be present at each OSJ…

Answer 26

1. principal
2. folder of customer complaints
3. copy of the firm’s written supervisory procedures

Question 27

SEC Rule 10b-10 requires that confirmations be given or sent to customers

Answer 27

at or prior to completion of the transactions

Question 28

A principal must review and/or endorse all of the following

Answer 28

1. order tickets
2. new account forms
3. retail communications

Question 29

All outgoing customer correspondence must be approved by a principal before distribution. True or false?

Answer 29

False

Question 30

Retail communication must be approved by a principal before use. True or False?

Answer 30

True

Question 31

A general securities principal must review all public communications. True or False?

Answer 31

False

Question 32

Copies of retail communication must be retained for 3 years from last use. True or False?

Answer 32

True

Question 33

If a member learns that one party is a JTWROS account has died, the member may immediately transfer the assets to the surviving owner. True or False?

Answer 33

False

Question 34

If a member learns that one party in a JTWROS account had died, it must immediately freeze the account and acceptance of orders until it receives the proper documentation. True or False?

Answer 34

False

Question 35

Members must send statements to customers at least quarterly or if there is activity in the account in any given month, a statement must be sent that month. True or False?

Answer 35

True

Question 36

Customers must be notified of any free credit balance in their account at least quarterly. True or False?

Answer 36

True

Question 37

A rescission offer must be in writing and include an agreement to buy back the securities at the higher of cost or market value, and to pay interest to the customer based on cost from date of purchase to date of repurchase. True or False?

Answer 37

True

Question 38

Retail communication related to investment companies and direct participation programs. Retail communication must be filed 10 days before or 10 days after first use?

Answer 38

After

Question 39

Retail communication related to options. Retail communication must be filed 10 days before or 10 days after first use?

Answer 39

Before

Question 40

Any retail communication filed by firms that are in their first year of FINRA membership. Retail communication must be filed 10 days before or 10 days after first use?

Answer 40

Before

Question 41

Retail communication relating to investment company products that include a ranking or comparison that is generally not published or is the creation of the investment company of the member firm. Retail communication must be filed 10 days before or 10 days after first use?

Answer 41

Before