Unit 5: Customer Accounts

Question 1

An employee of another FINRA member broker-dealer would like to open an account with your firm. All of the following statements regarding the employee and the account are true EXCEPT:

A) the employer must receive duplicate copies of all trade confirmations if requested

B) notification to and prior written consent from the employing member is needed for a cash account

C) notification to and prior written consent from the employing member is needed for a margin account

D) the broker-dealer holding the account must approve each transaction made by the person before entry of the order.

Answer 1

D) the broker-dealer holding the account must approve each transaction made by the person before entry of the order.

The broker-dealer has no obligation to approve every transaction before entry.

Question 2

All new accounts must be accepted on behalf of the firm by a ________

Answer 2

principal

Question 3

Firms must furnish each customer, within _____ days of opening the account, a copy of the account record.

Answer 3

30

Question 4

The 4 principal types of account ownerships:

Answer 4

1) Individual
2) Joint
3) Corporate
4) Partnership

Question 5

_______ Accounts – the basic investment account. Customer pays in full for any securities purchased.

Answer 5

Cash Accounts

Question 6

_______ Accounts – allow a customer to borrow money for investing

Answer 6

Margin Accounts

Question 7

________ Accounts – when opening an account for a corporation, a firm must obtain a copy of the corporate charter as well as a corporate resolution.

Answer 7

Corporate Accounts

Question 8

_________ Accounts – accounts that charge a single fee instead of commission-based charges for brokerage services. These are not wrap accounts.

Answer 8

Fee-Based Accounts

Question 9

_______ Brokerage Account – one in which a customer, generally an institution, selects one member firm (the prime broker) to provide custody and other services, while other firms, called executing brokers, handle all trades placed by the customer.

Answer 9

Prime Brokerage Account

Question 10

A customer’s account may be identified by only a number or symbol

Answer 10

Number Accounts

Question 11

FINRA rule requires that a person associated with a member, before opening an account or planning an initial securities order with another member, notify the employer and the executing member in______ of her association with the other member. The FINRA member firm must grant written permission.

Answer 11

writing

Question 12

Account registration that has one beneficial owner is known as a ______ account

Answer 12

Single Account

Question 13

A _______ account that allows the registered owner of the account to pass all or a portion of it, upon death, to a named beneficiary.

Answer 13

A Transfer on Death (TOD)

Question 14

Two or more adults are named on the account as co-owners, with each allowed some form of control over the account is known as a ______ account

Answer 14

Joint Account

Question 15

Joint account where ownership provides that a deceased tenant’s fractional interest in the account is retained by the tenant’s estate and is not passed to the surviving tenants

Answer 15

Tenants in common (TIC)

Question 16

Joint account that stipulates that a deceased tenant’s interest in the account passes to the surviving tenants

Answer 16

Joint tenants with right of survivorship (JTWROS)

Question 17

Discretion is defined as the authority to decide:
1)
2)
3)

Answer 17

1) What security
2) The number of shares or units
3) Whether to buy or sell

Question 18

Once a firm becomes aware of the death of the account owner, the firm must cancel all ______ orders, mark the account_______, and _______ the assets in the account until receiving instructions and the necessary documentation from the executor of the decedent’s estate.

Answer 18

open;
Deceased;
freeze

Question 19

In _______ accounts, the death of a tenant requires that the member firm freeze the account and acceptance of orders until the required documents are presented.

Answer 19

TIC

Question 20

In a _______ account, if one partner dies, the member needs written authority from the remaining partners before executing any further orders in the form of an amended partnership agreement

Answer 20

partnership account

Question 21

A type of custodial account where when the minor reaches age of majority, the property in the account is transferred into the name of the new adult

Answer 21

Uniform Gift to Minors Act (UGMA) –

Question 22

A type of custodial account where the custodian can withhold transfer of property in the account until the new adult reaches age 25

Answer 22

Uniform Transfers to Minors Act (UTMA)

Question 23

A gift under these UGMA and UTMA acts conveys an________ title – the donor may not take back the gift

Answer 23

indefeasible

Question 24

The _________ (OFAC) publishes and maintains a list of individuals and companies owned or controlled by, or who are acting for, or on behalf of, targeted countries and individuals, groups, or entities that are designated under programs that are not country specific, such as terrorists and those trafficking in narcotics.

Answer 24

The Office of Foreign Assets Control (OFAC)

Question 25

Having the authority to buy and sell securities on behalf of the owner

Answer 25

Trading authorization or power of attorney

Question 26

A registered representative or other person who has been given written authorization from a customer to make trading decisions for the customer

Answer 26

Discretionary

Question 27

An adult who has been designated to act on behalf of a child, who is the beneficial owner of the account

Answer 27

Custodial

Question 28

A third part who has been legally appointed to prudently manage the account on behalf of another person or entity.

Answer 28

Fiduciary

Question 29

Securities are registered in the customer’s name and shipped to them is called a _______ and _______

Answer 29

Transfer and Ship

Question 30

Securities are registered in the customer’s name, and the broker-dealer holds them in safekeeping is called ______ and ______in safekeeping

Answer 30

Transfer and Hold in Safekeeping

Question 31

Securities are registered in the broker-dealer’s name and held by the broker-dealer. Although the broker-dealer is the securities’ nominal owner, the customer is the beneficial owner are designated as ______ in Street Name

Answer 31

Hold in Street Name

Question 32

Is an offering of the Depository Trust Company (DTC) that provides registered owners the option of holding their assets on the books and records of the issuer or their transfer agent in book-entry form.

Answer 32

The Direct Registration System (DRS)

Question 33

_____ refers to the minimum amount of cash or marginable securities a customer must deposit to buy securities.

Answer 33

Margin

Question 34

______ accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee. Generally investment advisory accounts.

Answer 34

Wrap Accounts

Question 35

A ______ agreement states which of the partners can make transactions for the account.

Answer 35

Partnership Agreement

Question 36

_______ is any person legally appointed and authorized to represent another person, act on his behalf, and make whatever decisions are necessary to the prudent management of his account.

Answer 36

Fiducary

Question 37

An account for a trustee must include a _______ agreement detailing the limitations placed on the fiduciary.

Answer 37

trust

Question 38

The ______ _______ rule requires fiduciaries to make wire and safe investments

Answer 38

prudent investor

Question 39

___ Power of Attorney allows someone who is not the owner of the account to:
•Deposit or withdraw cash or securities
•Make investment decisions for the account owner

Answer 39

Full Power of Attorney

Question 40

Excessive trading

Answer 40

Churning

Question 41

________rules do not require the signatures of the registered representative or the customer on the new account form.

Answer 41

FINRA

Question 42

Rules also require the new account form to identify whether the customer is a director, officer, or shareholder of ____% or more of a publicly traded company. This helps monitor potentially unusual trading activity associated with insiders.

Answer 42

10%

Question 43

When opening a _____ account, the only signature required is that of the principal accepting the account. Neither the registered representative nor the customer are required to sign the new account agreement. By contrast, if the account to be opened is a margin account, the customer’s signature is required on the margin agreement.

Answer 43

cash

Question 44

Account ______ does not have to take place before the first trade; it can be done promptly after the completion of the first transaction

Answer 44

approval

Question 45

A ______ must approve every new account opened for the firm

Answer 45

principal

Question 46

In account _______, the firm has one day to validate positions and three more days to complete the transfer.

Answer 46

transfers

Question 47

_______ accounts are sometimes called special cash accounts. Before the crash of 1929, margin accounts were the normal type of account opened. Because cash accounts were unusual, they were referred to as “special”.

Answer 47

Cash

Question 48

To be in _____ ______ ______, securities sold from a join account must be signed by all tenants

Answer 48

good delivery form

Question 49

All parties have an undivided interest in the account

Answer 49

JTWROS

Question 50

Each party must specify a percentage interest in the account

Answer 50

TIC

Question 51

In a joint account, checks or distributions must be made payable to _____ parties and endorsed by _____ parties.

Answer 51

all;

all

Question 52

A ______ power of attorney (POA) will survive a declaration of mental incompetence.

Answer 52

durable power of attorney

Question 53

If you are having difficulty identifying a discretionary order, try this method:
An order is discretionary if any one of the three As is missing:

Answer 53

• Activity (buy or sell)
• Amount (number of shares)
• Asset (the security)

Question 54

Three basic steps apply at the death of a customer:

Answer 54

• Cancel open orders
• Freeze the account (mark it deceased)
• Await instructions from the executor of the estate

Question 55

_______ accounts are appropriate only for investors who engage in at least a moderate level of trading activity. Accounts with a low level of trading activity may be better off with commission-based charges.

Answer 55

Fee-based